Submarket emergence, customer base expansion and strategic entry timing in the evolution of the German farm tractor industry

Abstract

Abstract Technological discontinuities create new submarkets in existing industries, which may favor incumbents or provide opportunities to new entrants. Complementing prior research on the emergence of integrative submarkets that leave the industry’s customer base unchanged, we introduce the notion of additive submarkets, which are characterized by enlarging the focal industry’s customer base and its heterogeneity. Our empirical analysis focuses on how the emergence of an additive submarket after a competence-destroying technological discontinuity affected entry and firm survival in the historical German farm tractor industry. Using propensity score-weighted hazard models to control for the endogeneity of entry timing, we find that diversifying entrants from customer-related industries were more likely to enter and survive after the submarket emerged. We develop a conceptual framework to structure the implications for entry and survival of various types of entrants when technological discontinuities create new integrative or additive submarkets.