Research on technology and industries has identified two roads to riches. Firms can earn profits by creating or imitating a new product technology, which fills a need as yet unfulfilled. Alternatively, firms can earn profits by developing or imitating a replacement technology, which improves on and replaces technology already commercialized by established firms. How often these two roads to riches are successfully employed depends on relative abilities of entrant and incumbent firms.
The balance of power between established firms and entrepreneurial entrants depends on
evolving technology. Competence-enhancing versus competence-destroying technological changes, as Tushman and Anderson (1986) put it, respectively help or harm established firms. Times with competence-enhancing technological change correspond to early-mover advantage, and times of competence-destroying technological change correspond to late-mover advantage,
explaining some of the varied findings in the literature on early- and late-mover advantage (cf.,Lieberman and Montgomery, 1998; Schnaars, 1994). That technological change and innovation can provide entrant firm advantage has long been recognized, in economics (cf., Reinganum, 1983) and in managerial strategy (cf., Cooper and chendel, 1976; Foster, 1986). Disruptive
technological change, popularized in the business press by Christensen (1997), is often defined as competence-destroying technological change for which entrants succeed at displacing established firms. For example, Kasper Instruments, the 1973 market leader in photolithographic alignment equipment, lost its market share to perkin-Elmer in the mid-1970s transition to
proximity aligners and exited in 1981 (Henderson and Clark 1990; Henderson 1993).
This paper analyzes how business ventures fare in a wide range of product markets, and
asks how often ventures are attracted by radical new technologies that strongly disrupt industry competition by allowing the entrants to take over existing markets. To answer this question, this paper takes a deliberately indirect approach. Detailed information about relevant technologies is difficult to obtain and often involves subjective interpretation. In contrast, detectable implications of strong disruptive technological change on competition are unambiguous: firms should enter a market and outcompete its incumbent firms.
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Two Roads to Riches? The (In)Frequency of Disruptive Technological Change
