In 2021 and 2022, Carvana—the online used car juggernaut that lets you buy a car from your couch and pick it up from a giant vending machine—was banned from operating in Illinois, Michigan, and North Carolina. The company failed to comply with state regulations governing car-sales paperwork, and regulators revoked its license.
For traditional brick-and-mortar dealerships in those states, the reaction was something close to relief. The disruptor that had been eating their lunch was suddenly gone.
But then Carvana came back. And that’s where things get interesting.
The Disruption of a Disruptor
New research from Seongkyoon Jeong of the University of Tennessee’s Haslam College of Business, Sina Golara of Georgia State University, and Zachary Rogers of Colorado State University examines exactly this scenario. Their study in the Journal of Business Logistics asks: when a disruptor is forced out of a market and returns, what happens to the incumbents it disrupted?
The conventional assumption is that incumbents benefit while the disruptor is gone, then lose those gains when the disruptor returns—a temporary window of opportunity, nothing more. The data tells a different story.
How the Carvana Ban Reshaped the Used Car Market
The research team drew on sales data from 19,281 U.S. dealerships across 24 months, using Carvana’s state-by-state bans and reinstatements as a natural experiment. Using a method called synthetic difference-in-differences, they isolated the causal impact of Carvana’s exit and re-entry on incumbent dealers’ sales, controlling for broader market conditions, such as the pandemic-era used-car shortage.
The first finding confirmed the intuition: when Carvana was banned, incumbent dealers’ sales increased by roughly 5 to 10 percent. The second finding was the surprise: when Carvana’s ban was lifted and it re-entered the market, incumbent sales declined relative to the ban period—but they did not return to pre-ban levels. Dealers held onto a meaningful share of the gains captured during Carvana’s absence.
Why Did Incumbents Hold On?
The research centers on a concept the authors call referential transactional friction—the idea that consumers don’t evaluate the hassle of buying a car in absolute terms but relative to what else is available. Carvana’s model was built to reduce that friction: massive selection, no-haggle pricing, home delivery, and seven-day returns. When Carvana left, two things happened. Consumers recalibrated their expectations to match what was actually available. And dealers—given a window of breathing room—adapted.
The dealers who adapted best were those with greater product variety: a broader selection of makes and models. These dealerships captured a disproportionately larger share of the demand vacated by Carvana and held onto it longer after Carvana returned. Consumer ratings—a proxy for service quality—also played a role, though less consistently.
The mechanism is a form of organizational learning. During the disruptor’s absence, incumbents identified what was working and leaned into it—stocking more diverse inventory, building supplier relationships, and improving operations. When Carvana returned, it no longer faced the same competitive landscape it had left.
What This Means for Practitioners
For traditional retailers, the message is not simply to wait for the disruptor to stumble. The window created by a disruptor’s exit—whether due to regulatory trouble, operational failure, or market pressure—is a genuine opportunity to learn and adapt. Dealers who treated Carvana’s absence as a signal came out ahead. Industry leaders recognized this: the president of the North Carolina Automobile Dealers Association called Carvana’s suspension a “wake-up call” and urged dealers to embrace more customer-centric practices.
For disruptors themselves, the findings carry a cautionary note. Once disrupted, returning to a market is harder than entering it for the first time. Incumbents have watched, learned, and—in some cases—closed the gap. The element of surprise is gone.
Why This Research Matters
Carvana’s story is not unique. Uber was banned in London, Tesla faced regulatory barriers in China while local competitors scaled up, and TikTok survived a U.S. ban—each returning to a more competitive landscape than the one they left. These cycles are a recurring feature of modern markets, yet research has focused almost entirely on the initial entry phase.
This study opens a new lens on the full arc. For supply chain practitioners, the answer points toward product diversity and service capability as the levers that matter not just for surviving disruption, but for turning it into a lasting competitive advantage.
Access an online version of“When the Disruptor Is Disrupted: The Role of Transactional Friction on Incumbents During the Exit and Re-Entry of Innovative Firms,” by Sina Golara, Seongkyoon Jeong, and Zachary Rogers in the Journal of Business Logistics. Learn more about the range of expertise present among UT’s highly regarded supply chain management faculty.
Contact
Related News
Research Highlight: When Tariffs Hit, Do Companies Stock Up or Slim Down?
When tariffs hit in 2018, companies didn't just stockpile—they transformed. New research from Haslam College of Business supply chain management...
Read ArticleWhen Free Helps the Competition: New Research on Platform Promotions
What happens when companies give away their product?
Read ArticleWill Tariff-Induced Supply Chain Unpredictability Grinch-ify ‘Christmas in July’?
UT Haslam supply chain expert Huseyn Abdulla weighs how tariffs may affect Amazon Prime Day and other July sales events.
Read ArticlePathways to Decarbonizing the Rail Industry
Is it realistic or cost-effective for government policy to require rail operators to adopt zero-emissions standards? UT supply chain management...
Read Article