City Research Online

Abstract

Contemporary business strategy advocates “fail fast”, the practice of launching a product early, before the resolution of uncertainty about how product char- acteristics matter to consumers. We consider how uncertainty about consumer preferences can contribute to shakeout when moving from the infant stage of an industry, when this uncertainty is large, to the mature stage of an industry, when this uncertainty is small. We find that, consistent with the empirical literature, due to firms’ uncertainty about consumers’ preferences, there is excessive entry initially and, on average, positive shakeout in the number of firms in the market in the mature phase of the industry. The paper also presents a new way to model uncertain preferences in product differentiation models that may prove useful in other applications.

Publication Type:	Article
Additional Information:	© 2020 Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords:	Salop; fail fast; lean startup; preference uncertainty; shakeout; prod- uct life cycle; spatial competition, market structure, entry and exit.
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce
Departments:	School of Policy & Global Affairs > Economics
SWORD Depositor:	Symplectic Administrator

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