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

Kieron J. Meagher, Arlene Wong and Klaus Zauner ()

Journal of Economic Behavior & Organization, 2020, vol. 177, issue C, 589-600

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.

Keywords: Salop; Fail fast; Lean startup; Preference uncertainty; Shakeout; Product life cycle; Spatial competition; Market structure; Entry and exit (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 R32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:177:y:2020:i:c:p:589-600

DOI: 10.1016/j.jebo.2020.06.033

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