BALANCING THE DUAL ROLE OF DISRUPTOR AND DISRUPTEE

In the framework of disruptive technology, a new product plays the role of a disruptor when it improves quality and captures exisiting consumers from the incumbent. While the profit of the new product typically increases as it moves into the more lucrative segment of the market, such an upstream movement leaves more consumers at the low end unserved, who may become a potential market for even newer products that will disrupt the new product. In this paper, we use modelling approach to study how the firm may deal with this dilemma. In our model setting, we are able to show that the disruptor may balance its profit and risk of being disrupted by appropriately slowing down its migration into the high end. If migration to the high end is strategically important and should not be slowed down, the firm can still defend against disruption by offering a low end product, which is a better option than pure price cutting. Finally, we find that the accessory dimension makes it more likely to have disruption, which explains why new disruptors tend to be superior on accessory dimensions. The firm has more incentive to invest in cost reduction rather than to improve an accessory dimension, because cost reduction helps in capturing more wealthy customers, while improving an accessory dimension helps in capturing more poor consumers. So the disruptors are more likely to focus on disrupting because it is more profitable, rather than investing to improve the accessory dimension to defend against newer disruptors. The existing literature on disruptive technology has so far focused on the interaction between the product that disrupts and the product that is disrupted. Our analysis sheds light on a different angle of the phenomenon, that is, how a product that disrupts and that is disrupted simultaneously.