When a New Platform Enters a Market, What Is the Impact on Incumbents?

Abstract

Digital platforms enable new forms of business models with the potential to disrupt and transform many industries. However, the impact of a platform’s market entry on incumbents has not been taken into account. In this article, our objective is to provide evidence of the impact that a platform’s market entry could have on incumbents. We proposed several hypotheses based on a literature review and then evaluated them using a large dataset from the taxi industry in New York City. Our analysis showed several changes after a platform’s market entry. In contrast to previous understanding, the results indicate that the winner-takes-it-all-effect does not generally apply to the competition between new platforms and incumbents. Regarding the date of changes following a platform’s market entry, we observed a chicken-or-egg problem in the competition between a platform and incumbents. Consequently, our results indicate that incumbents have at least one year to react to the market entry and to make adjustments.

Keywords

• impact of market entry
• incumbents
• multi-sided market
• platform competition
• platforms
• two-sided market