ABSTRACT A rich body of literature highlights the successful market entry of innovative disruptors in the retail sector. However, these innovators are in an inherently precarious position and face substantial market and regulatory pressures. As a result, they can frequently become “disrupted” themselves. When disruptors exit and potentially re‐enter markets, it leads to market churn. The dynamics of such situations, and how incumbent firms can thrive during them, remain enigmatic within current literature. Focusing on transactional frictions in the context of retail supply chains, we explore how incumbents' supply chain capabilities contribute to their performance in the wake of market churn. We use the legal ban and unban events of Carvana, the largest American online used car retailer, between January 2021 and December 2022 as empirical context. Synthetic difference‐in‐differences analysis based on monthly used car sales data from 19,281 dealerships reveals that Carvana's market exit increased sales for local incumbents. Surprisingly, incumbents' sales remained significantly elevated even after Carvana re‐entered the market. We find that the inertia of incumbents' market performance stems from their product diversity and service levels. This highlights how supply chain capabilities shape transactional frictions and help sustain market performance amid dynamic market changes introduced by innovative disruptors.
Golara et al. (Wed,) studied this question.