Multimarket pioneers: Does multimarket contact improve their performance?

Abstract

First-mover advantages (FMA) and multimarket contact (MMC) have evolved independently in the strategic management literature. This is surprising because FMA erode as a result of competition which, in turn, is affected by MMC. This paper links these literatures through the concept of spheres of influence and analyses the effect of MMC on pioneers' profitability. We use the order of market entry to identify spheres of influence and to determine their distribution among multimarket firms. The distribution of spheres of influence allows us to distinguish between reciprocal MMC and non-reciprocal MMC and to study how each of them determines pioneers' profitability. We test our hypotheses in the mobile telecommunications industry. Our findings show that reciprocal MMC has a positive effect on pioneers’ results, but non-reciprocal MMC negatively affects them.