Which statement best describes first-mover advantage and its limitations?

• A. Being first to market can capture early market share, set standards, and build switching costs.
• B. Late entrants have no advantage.
• C. First movers always achieve market dominance.
• D. High R&D costs and risk of imperfect market are limitations.

Answer: (D)

First-mover advantage is about what a company can gain by being first to introduce a new product or service, such as capturing early market share, helping to set industry standards, and building switching costs that keep customers from moving to rivals. But these gains come with limits. The key limitations include high R&D costs to develop the new offering and the risk that the market is imperfect—demand may be misjudged, costs can be higher than expected, and early bets can backfire if technology or consumer preferences shift. This combination shows why the statement mentioning high development costs and the risk of an imperfect market best describes the constraints on first-mover advantage.

The other statements focus on benefits or absolutist claims that aren’t always true: being first to market is not the only way to gain advantage, late entrants can still succeed by learning from early moves, and first movers do not always achieve market dominance.