Innovation by Competitors and Firm Performance : The Influence of Demand Side Heterogeneity

This study explores the effects of innovation by competitors on firm performance. Building on the demand side perspective in strategy and innovation, we posit that competitor innovative efforts, through the introduction of new technologies, can help to reveal latent demand heterogeneity. This results in a customer response that is underlaid by two mechanisms migration of existing customers to the new technology and market expansion due to the addition of new customers. The salience of each particular mechanism, however, depends on the extent of competitive innovation resulting in a U shaped influence on firm performance. In addition, we suggest that this U shaped relationship between competitive innovation and firm performance is moderated by the firm’s position with respect to its consumers, in the market and in its use of collaborations to serve customers. We test our propositions in a sample of mobile operators that face the introduction of 4G technologies by their competitors, over a period of 10 years. Our results support our hypotheses on the suggested U shaped relationship between competitor innovation and firm performance. We find partial support for the moderating role of firm position in the market, with counterintuitive evidence of the biggest migration and expansion for firms at the high end of the market. Innovation by Competitors and Firm Performance: The Influence of Demand Side Heterogeneity Abstract This study explores the effects of innovation by competitors on firm performance. Building on the demand side perspective in strategy and innovation, we posit that competitor innovative efforts, through the introduction of new technologies, can help to reveal latent demand heterogeneity. This results in a customer response that is underlaid by two mechanisms migration of existing customers to the new technology and market expansion due to the addition of new customers. The salience of each particular mechanism, however, depends on the extent of competitive innovation resulting in a U shaped influence on firm performance. In addition, we suggest that this U shaped relationship between competitive innovation and firm performance is moderated by the firm’s position with respect to its consumers, in the market and in its use of collaborations to serve customers. We test our propositions in a sample of mobile operators that face the introduction of 4G technologies by their competitors, over a period of 10 years. Our results support our hypotheses on the suggested U shaped relationship between competitor innovation and firm performance. We find partial support for the moderating role of firm position in the market, with counterintuitive evidence of the biggest migration and expansion for firms at the high end of the market.This study explores the effects of innovation by competitors on firm performance. Building on the demand side perspective in strategy and innovation, we posit that competitor innovative efforts, through the introduction of new technologies, can help to reveal latent demand heterogeneity. This results in a customer response that is underlaid by two mechanisms migration of existing customers to the new technology and market expansion due to the addition of new customers. The salience of each particular mechanism, however, depends on the extent of competitive innovation resulting in a U shaped influence on firm performance. In addition, we suggest that this U shaped relationship between competitive innovation and firm performance is moderated by the firm’s position with respect to its consumers, in the market and in its use of collaborations to serve customers. We test our propositions in a sample of mobile operators that face the introduction of 4G technologies by their competitors, over a period of 10 years. Our results support our hypotheses on the suggested U shaped relationship between competitor innovation and firm performance. We find partial support for the moderating role of firm position in the market, with counterintuitive evidence of the biggest migration and expansion for firms at the high end of the market. Innovation by competitors and firm performance: The influence of demand side heterogeneity