Big losses in ecosystem niches: how core firm decisions drive complementary product shakeouts

Abstract This study examines shakeouts in the context of business ecosystems. Market turbulence generated by core firm decisions in competing differentiated ecosystems can generate financial losses and exit for complementary niche market firms. I develop hypotheses predicting which niche markets will suffer larger losses and be more susceptible to shakeouts, and how core firm decisions will drive complementor performance and survival. I then apply these hypotheses to brand‐based differentiated ecosystems in the automotive industry, where networks of suppliers, customers, and complementors surround car manufacturers. More specifically, I study the complementary niche market of automotive leasing, where manufacturers sway leasing markets through product change, entry, and subsidization. To test the hypotheses, I use a proprietary dataset of 200,000 individual car leases between 1997–2002 to identify how manufacturer product design and niche market entry drive complementor losses and exit. These data allow a unique opportunity to understand how the strategic choices of core firms can have substantial and often devastating effects on niche markets in their ecosystem. Further, the results suggest how the dynamic capabilities to adapt to core firm behavior might improve performance for certain niche market complementors. Copyright © 2008 John Wiley & Sons, Ltd.