28th European Regional Conference of the International Telecommunications Society (ITS): "Competition and Regulation in the Information Age", Passau, Germany, 30th July - 2nd August, 2017
Prior studies often examine the effect of inertia on enterprise strategy for attracting new consumers or attacking competitors in an industry. Various sources of the firm act as inertia for the incumbents in the strategy; the most representative example is incentives. For incumbents, large incentives reduce competitive inertia and motivate them to change strategy. For example, poor financial performance acts as an incentive. This study asks the question: does prior good performance motivate managers to retain their strategies in a competitive environment? As products in modern society have a very short life span and change rapidly, it is very dangerous for a company to stay in one place without any change in their strategy. Therefore, this paper focuses on the relationship between past performance and strategic choices of firms, and considers managerial incentive as a mediator between the two, even in a rapidly changing society. We analyze three aspects of change in a firm’s product strategies –market preemption, product diversification, and incremental product innovation–to observe the effect of inertia in the U.S. smartphone market. The results showed that past good performance resulted in some company strategies becoming passive. In addition, the past good performance of a company showed negative effects in expanding its market segment. The results were similar in terms of incremental product innovation. This implies that companies did not devote more time to product development once their products were valued well. Consequently, our paper empirically tested that past good performance caused inertia in product diversification and incremental product innovation strategies.