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

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

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.

Suggested Citation

  • Meagher, Kieron J. & Wong, Arlene & Zauner, Klaus G., 2020. "A competitive analysis of fail fast: Shakeout and uncertainty about consumer tastes," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 589-600.
    • Handle: RePEc:eee:jeborg:v:177:y:2020:i:c:p:589-600
    DOI: 10.1016/j.jebo.2020.06.033
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    References listed on IDEAS

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    Cited by:

    1. Olivier Kayser, 2023. "Ambiguous consumer tastes and product differentiation," EconomiX Working Papers 2023-20, University of Paris Nanterre, EconomiX.
    2. Mustafa Ozguven & Chong Yan Gao & Mohamed Yacine Si Tayeb, 2021. "The Utilization of Autoregressive Forecasting Models in Strategic Management," International Journal of Science and Business, IJSAB International, vol. 5(7), pages 170-185.

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    More about this item

    Keywords

    Salop; Fail fast; Lean startup; Preference uncertainty; Shakeout; Product life cycle; Spatial competition; Market structure; Entry and exit;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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