What is the fast-second strategy? What are the risks to a dominant firm from using such a strategy?

Question

What will be an ideal response?

Answer 1

A dominant firm that makes substantial profits from an existing product may let newer and smaller firms in the industry incur the high costs of product innovation. The dominant firm then monitors the successes and failures of the newer or smaller firmer. If the innovation looks promising, then the dominant firm can imitate the product innovation using its own product improvement abilities, marketing prowess, or economies of scale, and thus remain the dominant firm in the industry.
A dominant firm that employs such a strategy faces certain risks that must be overcome if the firm is to remain dominant. The newer or smaller firms can use patent rights, copyright protection, trademarks, and obtain brand-name recognition that give those firms advantage over the dominant firm in developing and marketing the innovation. There can also be trade secrets for product innovation and the experience of learning by doing that contributes to economies of scale and cost reductions. There can also be time lags because it will take time for the dominant firm to imitate and produce a successful competitive product.