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First-Mover Advantage

Definition - What does First-Mover Advantage mean?

A first-mover advantage is defined as the benefits generated for a firm that first breaks into a new market. It is the advantage gained by the initial significant occupant of a market. A first-mover may be able to gain huge profit margins and a monopoly-like status in the market due to lack of competition.

Divestopedia explains First-Mover Advantage

Mergers and acquisitions are strategic moves that can assist a firm in speedy growth. Entering a new market can help a firm create value. Firms eager to cut a profitable deal cannot take a wait-and-see approach. Acquisition performance is higher for early movers as compared to acquirers that enter the market at the height of an acquisition wave. As capital resources are limited, firms can gain first-mover advantage by promptly screening the competitive landscape, the deal’s value and their target’s business with evaluation criteria in place. Mergers and acquisitions are often driven with strategic advantages such as expansion of a firm’s geographic coverage or extension of its product range. A first move is a preemptive strike that helps build up a firm’s image and reputation with buyers and can result in cost advantage over rivals. Buyers tend to remain strongly loyal to pioneering firms.

The likelihood that a bidding firm will acquire its target increases when it has acquired a toe-hold in the target firm. However, the chance of overpayment also increases.

Making a first move is an offensive strategy to used to secure an advantageous position over a rival. However, fast followers may possess sufficient resources to overtake first movers in some cases. This is because a first mover has to tolerate the high costs of pioneering and may commit substantial mistakes that later entrants into a market may be aware of and be able to avoid.

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