Would turkeys vote for Christmas? New entrant strategies and coopetitive tensions in the emerging demand response industry

Abstract

To enter a market and scale up, entrant firms often need to cooperate with their incumbent competitors, so they are in coopetition with them. Our goal is to increase the understanding of the antecedents of coopetition and the ways in which new entrant firms navigate coopetitive tensions with incumbents. Moreover, we are interested in the impacts that coopetition has on the value creation and value appropriation of new entrant firms. So far, most literature on cooperation and coopetition in energy markets has provided the perspective of the incumbents. To study the issues empirically, we interviewed 15 demand response (DR) entrants. These firms operate in Finnish energy markets, providing automated DR services, in which Finland is a forerunner country. According to our results, collaboration between new entrant DR firms and energy incumbents was needed in order to establish the new markets. In addition, cooperation with incumbents was beneficial to DR entrants since they were able to gain new customers and increase the efficiency of their resource use due to, for example, common technological development activities. We found that the structure of energy markets was an important factor in shaping the market entry of DR entrants. According to our results, new entrants can enter electricity markets without much cooperation with the incumbents, but cooperation is necessary in natural monopoly district heating markets. As new EU regulations will enhance automated DR services, the results of this study have relevance in other EU Member States where automated DR markets have not yet been established.