Entry Bandwagon as a Signal for Incumbents: New Segment Explorations by Incumbents in the Korean Si Industry

Abstract

This paper examines how other firms’ bandwagon entries into an incumbent firm’s existing niche affect the focal incumbent’s subsequent within-industry new segment explorations. While the competitive interaction literature regards bandwagon entries as competitive threats to incumbents, we suggest otherwise that they may also serve as a signal with which incumbents evaluate the attractiveness of their existing niches. We predict that the attractiveness of an incumbent firm’s existing niche as signaled by bandwagon entries will affect whether the focal incumbent subsequently changes its niche through new segment explorations. Focusing on the signaling effects of bandwagon entries, we predict that while bandwagon entries at the industry level will have a positive effect on within-industry new segment explorations by incumbents, bandwagon entries at the segment level will have a negative effect. Moreover, we also predict that the effects of these two types of bandwagon entries will vary, depending on the focal firm’s niche width. According to our analysis of all new segment explorations by Korean SI firms between 2001 and 2005, all of our hypotheses were supported.