Abstract: We develop a framework to quantify the impact of first-mover incentives created by liquidity mismatch on the vulnerability of mutual funds to fire-sale spillover losses. We calibrate our model to US mutual funds and find that, in stressed market scenarios, spillover losses are multiple times larger than in a model that ignores the first-mover incentive. The nonlinearity of spillover losses reinforces fire-sale contagion across funds and asset classes, as it increases the incentive to redeem early and exacerbates the transmission of financial shocks through the portfolio commonality channel. Vulnerability is higher if sophisticated investors, most sensitive to the first-mover advantage, are concentrated in fewer funds.