Abstract
Why do dominant incumbents decline? Extant analyses of declining dominance largely focus on the erosion of technological bases of dominance. In contrast, our novel explanation focuses on the effect of geographic fragmentation on the erosion of demand-side barriers to entry and rise in strategic rivalry along the evolutionary path of the dominant incumbent’s growing industry. Our theoretical setting specifies a variation in demand-side structural characteristics across and within the independent geographic sub-markets of the dominant incumbent’s industry to simulate spatial and temporal variation in entry and competitive conditions. A unique unbalanced panel of independent geographic sub-markets in the US Long-distance telecommunications services industry during 1990–1996 provides the empirical setting to test a few novel hypotheses concerning the decline of a dominant incumbent under conditions of increasing geographic fragmentation.