Location of Repository

Masters of War: Rivals’ Product Innovation and New Advertising in Mature Product Markets.

By Andrea Fosfuri and Marco S. Giarratana

Abstract

We investigate the impact of rivals' product innovation and new advertising on a firm's financial market value in mature product markets. Our test bed is the carbonated soft drink market between 1999 and 2003, a period characterized by a near duopoly between Coca-Cola and Pespi. Empirically, we focus on new product announcements as a proxy of product innovation and on filed trademarks as a measure of new advertising. We find that rival product announcements decrease a firm's financial market value, and that rival filed trademarks increase it. Finally, we find that the effect of new advertising is channeled through market size dynamics, while that of product innovation operates through market share dynamics. Results are robust across different estimation techniques (event study, Tobin's q) and model specifications.Product innovation; Advertising; Firm value; Rivalry; Trademarks;

OAI identifier:

Suggested articles

Preview

Citations

  1. (1976). Advertising myopia.
  2. (1995). An economist’s view of research on term limits.
  3. (1993). An event study approach to measuring innovative output: The case of biotechnology.
  4. (2009). and Giarratana:
  5. (2008). Appropriability, preemption, and firm performance.
  6. (1993). Assessing the impact of competitive entry on market expansion and incumbent sales.
  7. (1984). Brand advertising competition and industry demand.
  8. (1990). Broader product line: A necessity to achieve success.
  9. (2007). Cola wars continue: Coke and Pepsi in
  10. (2006). Competitive advertising and market-size dynamics: A research note on theory and evidence.
  11. (2002). Competitive one-to-one promotions.
  12. (2008). Competitive response to radical product innovations.
  13. (2006). Defection detection: Measuring and understanding the predictive accuracy of customer churn models.
  14. (2000). Enlarging the pie vs. increasing one’s slice: An analysis of the relationship between generic and brand advertising. Marketing Lett.
  15. (1997). Firm valuation of advertising expense: An investigation of scale effects.
  16. (1992). Gaining comparative advantage through discretionary expenditures: The returns to R&D and advertising.
  17. (2005). Generic and brand advertising strategies in a dynamic duopoly. Marketing Sci.
  18. (2004). How is manifest branding strategy related to the intangible value of a corporation?
  19. (1998). Impact of strategic alliances on firm valuation.
  20. (1996). In search of the marketing imagination: Factors affecting the creativity of marketing programs for mature products.
  21. (2005). Market value and patent citations.
  22. (2004). Multiple discreteness and product differentiation: Demand for carbonated soft drinks. Marketing Sci.
  23. (1989). Multiproduct duopolist.
  24. (2004). New products, sales promotions and firm value, with application to the automobile industry.
  25. (1992). Non-response and delayed response to competitive move: The role of competitor dependence and action irreversibility.
  26. (2009). Product innovations, advertising, and stock returns.
  27. (1999). Product line extensions and competitive market interactions: An empirical analysis.
  28. (1999). Product proliferation: An empirical analysis of product line determinants and market outcomes. Marketing Sci.
  29. (2006). Profiting from technological innovation: The effect of competitor patenting on firm value.
  30. (2003). R&D, marketing, and the success of next-generation products.
  31. (2002). Soft drinks giants face battle for individuality.
  32. (1995). Stock market reactions to brand extension announcements: The effects of brand attitude and familiarity.
  33. (1998). Strategies for product cannibalism.
  34. (1998). Technology and Market Structure.
  35. (1994). The competitive performance of U.S. industrial enterprises since the Second World War. Bus. History Rev.
  36. (1992). The cross-section of expected stock returns.
  37. (1992). The diffusion of technological innovation in the commercial banking industry.
  38. (2001). The effects of provision points on generic advertising funding. Marketing Lett.
  39. (2003). The financial rewards of new product introductions in the personal computer industry.
  40. (1993). The measurement and determinants of brand equity: A financial approach. Marketing Sci.
  41. (1999). The performance of U.S. corporations:
  42. (1975). The product life cycle and the time-varying advertising elasticities.
  43. (1988). The relationship between advertising and product quality over the product life cycle: A contingency theory.
  44. (1997). The roles of marketing, product quality, and price competition in the growth and composition of the U.S. antiulcer drug industry.
  45. (2003). The value relevance of trademarks.
  46. (2005). The wealth effect of new product introductions on industry rivals.
  47. (2004). Trademarks as an indicator of innovation and industrial change.
  48. (2003). Trading off between value creation and value appropriation: The financial implications of shifts in strategic emphasis.

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.