Essays on Competition and Innovation: Empirical Investigations of Product Recalls and Private Labels

This dissertation focuses on how competition influences firms’ innovation activities. Although research suggests that competition generally motivates firms to innovate, innovation as a response to competition may not always materialize because innovation is risky and resource intensive. Nuances of the competition-innovation relationship are different depending on specific contexts. This dissertation examines two unique contexts where competition may not lead to increased innovation: product recalls and private labels. Essay 1 of this dissertation focuses on product recalls. While the competitive response literature predicts that firms intensify innovation when their competitors experience product recalls and are thus vulnerable to competitive actions, I apply vicarious learning theory and show that competitors’ product recalls in fact reduce the focal firm’s new product introductions because the focal firm learns from competitors’ product recalls, which shifts its resources from new product development to product safety. Essay 2 focuses on private label products. While researchers have suggested that a potential strategy for national brand manufacturers to compete with private labels is to intensify innovation to differentiate their products, I apply threat-rigidity theory and show that the growth of private labels increases manufacturers’ exploitative innovation, but not explorative innovation. This is because the threat of private labels causes manufacturers to act rigidity, leading them to avoid taking risks but rely on well-learned actions. In both essays, I identify conditions that strengthen or weaken the above-mentioned effects. Firms’ understanding of their competitive positions and implementation of competitive actions are influenced by how they view their competitors as well as customers. My focus on competitors complements the marketing literature’s traditional emphasis on customers in firm innovation.