First-Mover Advantages versus First-Mover Benefits: What’s the Difference and Why Does It Matter?

We present a theoretical framework to address the inherent endogeneity problem in entry-timing research by distinguishing the concept of first-mover benefits (FMB) from first-mover advantages (FMA), the former being a counterfactual and (usually) unobserved pure treatment effect, and the latter being an actual observed combination of treatment and selection effects. They differ in the baseline to which the first mover's performance is compared – either to the follower's actual performance (for FMA) or to the first mover's hypothetical performance if it had been a follower (for FMB). We consider the implications of this distinction for entry-order choices, and our formal economic model analyzes this distinction to make predictions about biases arising from using FMA as a proxy to estimate FMB, and also about how FMA, FMB, and their difference are affected by inter-firm asymmetries in resources and information.