Abstract
Drawing upon an unusually rich data set, we analyze the interrelated processes of technological and regulatory change in the Swedish telecom sector when it was first subject to competition. We find that the challenger Comvik could gain a position in the market despite vastly inferior resources to the incumbent state-owned Televerket. Not only had Televerket a considerable customer base, massive cash reserves, the right to regulate the telecommunications market, and direct access to the political decision-makers. They also had superior technology. Even though Comvik never threatened Televerket's market position, the latter was very keen on stopping the new entrant, likely due to the risk of opening Pandoras Box (i.e., the market for new entrants): Televerket was in a situation where they could accept a second small mobile operator, but not the loss of the monopoly. However, as a monopolist, Televerket lacked legitimacy, something that Comvik exploited. By winning the public relations battle, Comvik could prevent Televerket from using the available legal tools, and staying in business. Our results suggest that strategic battles between challengers and incumbents must be analyzed as a systemic interplay between competition in the commercial and institutional domains.