Strategic Responses of Start-ups to Regulatory Constraints in the Nascent Drone Market

This paper identifies determinants of start-ups’ responses to the regulatory constraints they face when introducing innovations in nascent and highly controlled markets. Based on 49 interviews with start-ups, potential customer firms and other industry actors related to the commercial drone industry, we examine how the constraints imposed by regulation on the nascent market for drone applications affect start-ups’ efforts to commercialize their innovations. We find that to successfully influence regulation, start-ups need to bridge current and potential future market stages: Start-ups innovating at the technology frontier are more likely to engage in the regulatory process and more likely to possess the required regulatory resources and pursue market applications sufficiently legitimate to successfully negotiate with regulatory actors.