In certain industries, start-up companies can be observed implementing a new kind of business model which deliberately forgoes sustainable profits in order to threaten incumbents’ revenues. This results in a highly profitable exit for the investors when a threatened incumbent buys the entrant. In a series of experiments with students and managers, this study analyzes why this strategy is almost always successful, even after removing various strategic uncertainties. When start-ups demonstrate their ability to change the existing market by challenging incumbents and their traditional business models, incumbents start to bid for the entrant’s business to deal with the threat. The results indicate that there are two main reasons why incumbents compete for the entrant.
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The Lecture Series
The KLU Lecture Series is a forum for scientists and practitioners to talk and discuss on state-of-the art topics related loosely to logistics and entrepreneurship.