The Digital Revolution and Incumbent Newspaper Adaptation

The question of whether and which incumbent firms can adapt to technological change has been studied from a diverse theoretical perspective, and studies have offered boundary conditions under which a certain incumbent firm may be better positioned to adapt to technological change. This question, however, has yet to be studied in the context of multi-sided markets. In this paper, we study how firms in two-sided markets respond to a technological change that occurs in one side of the market. We specifically study how the U.S. newspaper publishers adapted to the digital revolution. Building on the existing work on two-sided markets that assumes firms to be homogenous, we propose that firms in two-sided markets may differ in the amount of attention that they pay to one side of their markets, and such difference may affect their adaptation strategy during a technological change. We hypothesize and find evidence that newspapers focused more on their reader side of their market are slower to enter the digital market than newspapers that are less focused on the reader side of the market. This effect, however, is moderated by the level of Internet penetration in the region in which the newspaper operates in. © 2017 Academy of Management