When does a new product introduction create value for rivals?
Pham Thi Minh Ly, Minh Tuan Phung
product innovativeness, product breath, competition, eWOM, rival firms
The extant literature provides unclear findings on how innovation impacts the profit metrics and market performance of the announcing firm as well as its rivals, particularly in different contexts regarding the relative positions of these firms in the market. Therefore, the primary objective of this study is to investigate the effects of new product introductions by focal firms on the corporate value of their competitors. The analysis is based on a dataset comprising 2,452 new product announcements in the United States spanning the period from 2010 to 2020. The findings reveal that the innovativeness of new products has a positive impact on the abnormal returns of large rival firms but a negative impact on the abnormal returns of small rival firms. Further examination of moderation effects indicates that the positive effect of product innovativeness on the abnormal returns of large rival firms is strengthened when these firms possess advantages regarding media presence and market positioning. Conversely, the negative effect of product innovativeness on the abnormal returns of small rival firms is mitigated when these firms have advantages in terms of brand reputation and media influence. These findings suggest that the market expansion and market penetration hypotheses hold true only under specific firm conditions. Furthermore, the results indicate that when a rival firm holds a dominant market position and receives significant positive electronic word-of-mouth signaling customer satisfaction with its products, focal firms tend to respond by increasing their innovation efforts to create distance between themselves and the leading rival firms.
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Ly, P.T.M. & Phung, M.T. (2023). When does a new product introduction create value for rivals? Journal of Competitiveness, 15(3), 122-138. https://doi.org/10.7441/joc.2023.03.07