Industry dynamics with diversity in firms' catch-up strategies and demand conditions: a simulation approach

Dynamic simulations have been conducted to analyze the performance dynamics of entering firms using three different entry strategies (i.e. path-following, PF, stage-skipping, SS, and path-creating/leapfrogging, PC) under four different demand conditions (i.e. fixed demand, fluctuating demand with constant average, expanding demand with constant growth, and fluctuating demand with constant growth rate). One of the key contributions of this study is clarifying the role of diverse entrant strategies and demand conditions in industry dynamics. First, we find that market expansion is favorable to incumbent firms, whereas market fluctuation is favorable to entering firms. Among the three entry strategies, the PC strategy is often best, whereas the PF strategy is the worst. However, the gap in catch-up performance is reduced if the demand condition is of the fluctuating demand variety. Fluctuation of demand works better for PF strategy firms compared with SS and PC firms, which would suffer during downturns, particularly during the early stage of entry. By contrast, the gap between each strategy increases under expanding demand with constant growth rate.