Fast-Mover Advantages: Speed Capabilities and Entry into the Emerging Submarket of Atlantic Basin LNG

• Published in: IDEAS Working Paper Series from RePEc
• Main Authors: Hawk, Ashton, Pacheco-de-Almeida, Gonçalo, Yeung, Bernard Yin
• Format: Paper
• Language: English
• Published: St. Louis Federal Reserve Bank of St. Louis 01.01.2012
• Subjects: Market entry; Speed limits
• DOI: 10.2139/ssrn.2866806

Studies on market entry focus on the tradeoff between commitment and flexibility: early entrants face less competition but risk costly mistakes due to limited information, whereas late entrants can benefit from information revelation and learning opportunities but risk high costs from preemption. These entry timing benefits and costs typically vary with firms' capabilities. In this study, we empirically examine the relationship between firms' intrinsic speed capabilities and entry timing. Speed capabilities refer to firms' ability to execute the process of entering a new market faster than competitors when market entry is time-consuming. Since firms with intrinsic speed capabilities can complete entry faster, they face low preemption risks. The implication is that faster firms can afford to wait longer for uncertainty resolution before deciding to enter new markets than slower firms. This hypothesis is more applicable when investment is associated with higher levels of commitment and thus greater option value of waiting. A related implication is that late entrants with intrinsic speed capabilities should have greater expected post-entry performance. We find support for these hypotheses by examining the entry timing and entry performance of firms in the Atlantic Basin liquefied natural gas (LNG) industry from 1996 to 2007.