How a Leader Firm Responds to Competition: Protecting Digital Assets Amidst Imitation, Substitution, and Entry Threats

Existing research on protecting digital assets has primarily focused on reducing the threat of imitation threat via formal strategies (such as patents, copyrights, and trademarks) and substitution threat via informal strategies (such as rapid innovation, encouraging imitation). However, due to the ease of copying digital product features, it remains unclear how a leader firm can balance the tension between imitation and substitution threats for protecting its digital assets, notably under open and highly uncertain conditions. To address this issue, we have developed a two-stage evolutionary game model that describes the strategic positioning of a leader firm and its subsequent adjustments in response to different competitive scenarios. Our results indicate that a weak incumbent tends to adopt the imitation innovation strategy, while the potential entrant tends to align itself with the weak incumbent. The leader’s strategic positioning is affected by both independent and interactive effects of the weak incumbent and potential entrant. Our research verifies the significant role of the potential entrant in helping the leader firm to protect its digital assets through the implementation of formal and informal strategies. Furthermore, we extend the application of the resource-based view (RBV) in high uncertainty markets by combining it with strategic positioning. Our research provides managers with a better understanding of competitive scenarios and enables them to make appropriate responses to protect their digital assets.