First mover advantage is the idea that by being the first to enter a new market, a business gains a commercial advantage over its actual and potential rivals leading to higher revenues and profits over time. There are lots of examples of where first mover advantage is seen as being significant but it is also important to understand that first mover advantage also carries risks.

What is first mover advantage?

Advantages of being the first mover

A business first into the market can develop a significant competitive advantage through learning by doing - making it difficult and costly for new firms/rivals to enter They can exploit internal economies of scale (leading to lower LRAC) and also build brand loyalty/ repeat demand Consumer behaviour can become habitual – and this is hard to eat into! Behavioural economists argue that default behaviour is strong in many of the decisions that we may.

Risks from being the first mover into a market

Employees from the first mover business may leave to set up challenge brands – taking some of the intellectual capital with them First movers are often unprofitable, the failure rate can be high Second-movers can learn much from first mover mistakes!

First scaler advantage may be more important in the long run than first mover advantage - the key for a business is to get up to scale to become a competitive, perhaps dominant force

Example of First Mover Advantage - The Zero to 100 Game

Two players A and B take turns choosing a number between 1 and 10 (inclusive)

A goes first

The cumulative number of ALL of the numbers chosen is calculated as the game progresses

The winner is the player whose choice of number TAKES THE TOTAL to 100 or more

Does this game have first mover advantage?

The answer is YES!

For Player A to win, he/she must a number that takes the total to 100 or more

The only way this can happen is Player B to leave me a number of 90 or more

Player A needs to ensure Player B is left with 89

Player B knows this too

Player A needs to leave Player B with 78

Using backward-induction to work towards the solution

100 – 89 – 78 – 67 – 56 – 45 – 34 – 23 – 12

Player A can ensure he/she wins by going first and choosing 1

Check out our full revision presentation on Game Theory