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Entrepreneurship in Regulated Markets: Framing Contests and Collective Action to Introduce Pay Tv in the U.S

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Entrepreneurship in Regulated Markets: Framing Contests and Collective Action to Introduce Pay Tv in the U.S r Academy of Management Journal 2015, Vol. 58, No. 6, 1709–1739. http://dx.doi.org/10.5465/amj.2013.0775 ENTREPRENEURSHIP IN REGULATED MARKETS: FRAMING CONTESTS AND COLLECTIVE ACTION TO INTRODUCE PAY TV IN THE U.S. KEREM GURSES LUISS Guido Carli University PINAR OZCAN Warwick Business School In their endeavor to establish new products and services, entrepreneurs can face strong resistance from market incumbents whose resources and market position they threaten. This paper looks at the battles between entrepreneurs and market incumbents in a regu- lated market where various institutional actors (e.g., regulators, courts) have the power to protect the incumbents by hindering the entrepreneurs. Our comparison of one failed and one successful attempt to introduce pay TV in the U.S. reveals how entrepreneurs can first enter a regulated market without facing resistance, and then introduce a new frame to legitimize their product or service despite growing resistance from incumbents. Our framework highlights framing as a strategy and framing contests as a mechanism through which entrepreneurs and incumbents can battle to enable or disable institutional change. As part of this process, we also uncover how entrepreneurs evolve from self-serving actors with no field-level intentions to powerful groups that create a ripple effect in their envi- ronment by moving their target of influence from private to institutional actors. Our work constitutes a step toward a more “realistic” tale of institutional change. Entrepreneurship has long been viewed as an engine our knowledge of firm strategy, and of the innovation that drives innovation and promotes economic devel- adoption in societies. opment (Reynolds, 1997; Schumpeter, 1934). How- In this study, we explore this topic through the ever, this engine can slow down significantly due to research question: How do entrepreneurs and in- resistance from various market players and institutions cumbents advance or protect their interests and whose resources and position entrepreneurs threaten shape a regulated market in their favor? Our study while establishing their products and services (Aldrich addresses earlier calls (e.g., Haveman, Habinek, & & Baker, 2001; Pache & Santos, 2010; Pacheco, York, Goodman, 2012; Zahra, 2007) to emphasize the dy- Dean, & Sarasvathy, 2010; Sine & Lee, 2009). Studies namics of the research context in process-based have shown that a major source of resistance against studies. Our context is the development pro- entrepreneurs comes from market incumbents (Aldrich cesses of two distinct attempts to introduce pay TV & Baker, 2001; Lawrence, 1999). Market incumbents are services—“over-the-air (OTA) pay TV” and “pay known to attack entrepreneurs directly by introducing cable TV”—within the strictly regulated industry of new products, as well as indirectly by maintaining broadcasting between 1949 and 1985 in the United strong connections to key institutions that can impose States. Comparing and contrasting these two at- restrictions on the entrepreneurs (Aldrich & Baker, tempts to introduce pay TV we observe that despite 2001). Incumbent resistance can be particularly strong a familiar technology,1 a lower installation cost, and in regulated markets where various institutional actors (e.g., regulators, courts) have the power to protect the 1 incumbents against market entrants through laws and The technology for the over-the-air pay TV service is a small modification of the broadcasting technology al- regulations (Edelman & Suchman, 1997; Russo, 2001). ready in use for public television. A broadcast channel But how can incumbents convince these actors to transmits a scrambled signal over the air and a decoder hinder entrepreneurs with innovative products or unscrambles it at the subscriber’s home. Cable TV, on the services? In turn, how can the entrepreneurs estab- other hand, uses wires to distribute over-the-air signals lish their products and services despite this re- from community antennas to households in remote loca- sistance? Answering these questions is critical for tions. See Findings for further details. 1709 Copyright of the Academy of Management, all rights reserved. Contents may not be copied, emailed, posted to a listserv, or otherwise transmitted without the copyright holder’s express written permission. Users may print, download, or email articles for individual use only. 1710 Academy of Management Journal December resourceful advocates, OTA pay TV was deterred by during the regulation of new technologies, public regulators while pay cable TV thrived. interest is at the core of the related framing con- The framework that emerges from our findings ex- tests. In this process, incumbents can attempt to plains how entrepreneurs can first enter a regulated influence regulators by framing the new technol- market without resistance, and then introduce a new ogy against the public interest. This strategy is frame around their product or service in order to le- effective as it engages the raison d’etre of the reg- gitimize it despite growing resistance from powerful ulatory agency—i.e., preserving the public interest incumbents. In the process, they first address various (Pigou, 1932)—leaving the market entrants with no interest groups that can benefit from their product or choice but to introduce an alternative frame of public service, and then generalize their frame to one of interest around their technology. We posit that in public interest. Once public support is achieved, they this process, an indirect approach to the regulators, lobby various institutional actors to put pressure on using collective action to create a ripple effect in the the regulators to rule in their favor. We identify that public and institutional spheres, may be more ef- each objective within this process is supported by fective than petitioning them directly. a framing strategy and various forms of collective ac- Finally, our study follows earlier empirical attempts tion in order to influence the target. As part of this (e.g., Hargadon & Douglas, 2001; Pacheco et al., 2010; process, we also uncover how entrepreneurs become Tracey, Phillips, & Jarvis, 2011) to establish a link more strategic in their actions over time as they between entrepreneurship and institutional entrepre- gradually turn into institutional entrepreneurs by neurship by documenting the evolution of entrepre- slowly changing the way the industry is regulated. neurs from being self-serving and improvising, with Our findings make various contributions to liter- no field-level intentions, to becoming central actors ature. First, we emphasize that framing is an impor- with strategic actions targeted at changing their in- tant strategic tool during market entry. As described stitutional environment (Levy & Scully, 2007; Pacheco above, entrepreneurs typically face a strong coalition et al., 2010). In the process, we contribute to estab- between incumbents and institutions upon entry lishing a more “realistic” image of institutional into established, and especially regulated, markets entrepreneurship (Aldrich, 2011; Aldrich & Fiol, (Aldrich & Baker, 2001; Russo, 2001). We observe 1994), where institutional change is fueled by en- that entrepreneurs can avoid resistance from this trepreneurs acting collectively to convince private strong coalition by aligning their product or service and institutional actors to cooperate in order to with the interests of incumbents and the dominant benefit from the change while battling resistors of frame of the regulators. This strategy is effective be- change (e.g., incumbents) through framing contests. cause it creates an initial positive opinion from reg- In the remainder of the paper, we first lay out the ulators, which would take the incumbents time and theoretical background on our research question, effort to change, thus creating a window of oppor- then discuss the findings, their generalizability and tunity for entrepreneurs to grow. contributions to the literature, and finally provide Second, our findings illustrate how, in their at- concluding remarks. tempt to legitimize their service, cable operators entered a framing contest with the incumbents, how THEORETICAL BACKGROUND this framing contest divided the institutional actors, and how cable operators then invited the opposing Entrepreneurship is defined as the process of discov- institutions to switch sides in order to reduce the ering, evaluating, and exploiting opportunities to create industry turmoil. Prior studies have documented the future goods and services (Shane & Venkataraman, existence of framing contests as a central mechanism 2000). Studies have shown that environmental con- leading to the creation and change of institutions ditions can make a significant difference in the avail- (Guerard,´ Bode, & Gustafsson, 2013; Kaplan, 2008; ability of opportunities for entrepreneurs and their Ryan, 1991; Schneiberg & Soule, 2005). However, ability to exploit them (Aldrich, 1999; Baumol, 1996). studies have not informed how framing contests oc- A growing stream of research examines entrepreneur- cur and how the frames of different parties evolve ship in nascent markets where entrepreneurs struggle over time. Our findings constitute a potentially im- to gain legitimacy amid high ambiguity (Aldrich & portant step in documenting the role of not only the Fiol, 1994; Rindova & Fombrun, 2001), unclear entrepreneurs, but also the incumbents and various product definitions, industry structure, and de- institutions in the emergence and
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