How and why do firms respond differently to innovation shocks? This question has received attention from technology and strategy scholars, with several theoretical themes outlining likely responses. However, firm response becomes more complicated when firms are embedded in ecosystems. To better understand the responses of such firms, we adopt the perspective of the comparative adjustment costs approach (Argyres et al., 2015; Argyres et al., 2019; Bigelow et al., 2019).This approach emphasizes the potential frictions that impede or accelerate firm response, thus predicting key strategic responses including how quickly some firms are able to respond to an innovation shock. Studies to date examining adjustment costs have focused primarily on sectors where firms can unilaterally make repositioning decisions. We provide a test of how such costs impact firms embedded in ecosystems. Specifically, we examine the response of satellite manufacturers using launch data from 1957-2022, a period that precedes and follows the innovation shock of the commercialization of the CubeSat design. We find that considering comparative adjustment costs helps predict how quickly firms can respond and identify additional factors that impact firm response.
