A competitive analysis of fail fast: Shakeout and uncertainty about consumer tastes

Kieron J. Meagher, Arlene Wong, Klaus G. Zauner

Research output: Contribution to journalArticle

Abstract

Contemporary business strategy advocates “fail fast”, the practice of launching a product early, before the resolution of uncertainty about how product characteristics 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.

Original languageEnglish (US)
Pages (from-to)589-600
Number of pages12
JournalJournal of Economic Behavior and Organization
Volume177
DOIs
StatePublished - Sep 2020

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management

Keywords

  • Entry and exit
  • Fail fast
  • Lean startup
  • Market structure
  • Preference uncertainty
  • Product life cycle
  • Salop
  • Shakeout
  • Spatial competition

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