Decoupling market incumbency from organizational experience : a study of biotechnology's impact on the market for anti-cancer drugs

In studies of creative destruction, scholars agree that, within research-intensive industries, the demise of incumbents is significantly determined by their lower productivity in researching the radically new technology (Henderson, 1993). Such differences in the research competence of incumbent vs. entrant firms are explained in the literature through theories about established vs. de novo firms (e.g., Nelson and Winter, 1982). A disconnect arises because, frequently, the most competent entrants are established (experienced) firms themselves (i.e., diversifying entrants). In fact, studies where diversifying and de novo entrants are compared find in the former the same mechanisms that scholars have argued take place in incumbent firms (e.g., Mitchell and Singh, 1993; Carroll et al., 1996). With this insight in mind, I present in this dissertation a study that decouples market incumbency from organizational experience. I walk away from the current hypothesis of incompetence in research and development of a radical new technology in the case of incumbents. I instead construct a framework highlighting the competitive disadvantages (organizational inertia) and advantages (competence re-use) that apply to all established firms (incumbents and diversifying entrants) vis-a-vis de novo firms.