We extend the literature on disruptive innovation by focusing on different dimensions of demand complementarity that can be exploited by the incumbents and disruptive entrants through their respective business models. While disruptive entrants may not be able to imitate the incumbents in exploiting within-customer demand complementarity (e.g., by offering a variety of products or services) to increase their value proposition to mainstream customers, they may exploit between-customer demand complementarity by offering products or services with network effects to attract customers in niche segments. Over time, the network effects may even attract mainstream customers to the entrants’ products or services, thereby disrupting the incumbents’ business. To test these ideas, we leverage an exogenous addition of a bus line in Manhattan, New York City, that unintentionally extended the reach of subway commuters from Brooklyn neighborhoods with a large unbanked population and a high FinTech payment adoption rate to neighborhoods in Manhattan. We find that the addition of the bus line was positively associated with the numbers of commuters from Brooklyn to the treated Manhattan neighborhoods. In addition, restaurants near the new bus stops or those in neighborhoods that experienced a reduction in travel time from Brooklyn saw a higher percentage of their customers using FinTech payment apps (e.g., PayPal), whereas local bank branches experienced a decrease in bank visits. However, the decrease in bank visits was less for (1) local bank branches that offered products or services with greater potential within-customer demand complementarity (e.g., those offered a broader scope of services, including loans and financial advisory services in addition to payment), and (2) local branches of banks that had preemptively provided offerings with network effects (e.g., those that had joined the Zelle platform).
