Responding to Rivals and Complements: How Market Concentration Shapes Generational Product Innovation Strategy

This study examines how competitive market conditions shape the responsiveness with which businesses release generational product innovations (GPIs) following the introduction of GPIs by either competitors or complementary firms. GPIs are substantial technical advances in the performance of products within technology regimes. Prior studies of innovation timing in the organizational strategy literature emphasize internally driven strategies of GPI. Although internally driven strategies may predominate when businesses face diffuse competition for their product lines, the literature largely overlooks the point that businesses need to be increasingly responsive to external events as market concentration increases. This study, which examines businesses competing in the U.S. packaged software industry in the 1990s, shows that increasing industry concentration raises the stakes surrounding market positions and leads to greater interdependence of innovation strategies in an industry—including interactions both with competitors and with other players in a larger system of complementary products. As concentration increases, therefore, organizations are less driven by historical patterns of innovation and become increasingly responsive to innovations by both types of external actors.