ESSAYS ON TECHNOLOGY CHANGE AND FIRM CAPABILITIES IN NASCENT MARKETS: EVIDENCE FROM THE BIONIC PROSTHETIC INDUSTRY

Abstract

My first essay examines how radical technological systems are created by economic actors that are heterogeneous in both their prior history and their experimentation efforts, and the implications for their value capture strategies. Defining radical technologies based on their effect on existing technological regimes, scholars have studied incumbent-entrant dynamics based on whether incumbents can offset the obsolescence of their technological capabilities by utilizing complementary capabilities or by adapting to technological change. I identify important limitations stemming from such a definition of radical technologies and utilize the alternative definition of radical technology as a technological system that utilizes new base principles at either component or system level. We utilize historical methodology to analyze rich quantitative and qualitative data on the incubation and commercialization of bionic prosthetics. We show that the component knowledge for the new technological system was created by diverse firms—startups, conventional prosthetic incumbents, and established firms in other industries. However, incumbents who invested in the new technology system were key to creating an integrated system for bionic prosthetics and dominated in commercialization efforts in the nascent industry. Startups captured value through licensing or being acquired by incumbents, and established firms in other industries were knowledge spillover conduits, given their focus on alternative nascent downstream markets to capitalize on their existing capabilities. The second essay examines how and why the sources of entrepreneurial knowledge, namely prior experience that founders gained in academic, user, and employee settings, may affect market strategies of new ventures. While prior studies did not examine the heterogeneity of pre-entry knowledge in predicting strategy and performance of startups, I argue that each firm type possesses a distinct comparative knowledge advantage regarding key elements of the industry’s technological system, thereby leading to firm differences in technological and value chain positioning. I assembled the quantitative and qualitative data of 106 prosthetic startups created between 1991-2017. My results indicate that academic startups were likely to choose component-level products based on nascent technology, while employee startups were likely to choose finished products based on established technology. Also, user startups were likely to choose niche, component-level products leveraging established technology. Through qualitative data, I interpret my findings to suggest that entrepreneurs’ strategic choices are constrained by their initial strengths and the cost of acquiring additional resources. Together, I suggest that entrepreneurial strategy can be better understood by considering the interaction of the types of entrepreneurial knowledge and the industry’s technological system.