Escaping product market rivalry through innovation

Dandan Xia, Bruno Cassiman and David Wehrheim

No 765722, Working Papers of Department of Management, Strategy and Innovation, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven

Abstract: This study leverages advanced text-analysis techniques to investigate how increased product market rivalry, induced by Chinese import competition, affects innovation among incumbent U.S. firms in the electronic and electrical appliance industry. We measure the similarity between the product descriptions of U.S. firms and those of Chinese importers, thus capturing firm-level competitive pressure. Employing a continuous difference-in-differences framework, we compare innovation outcomes of U.S. firms more directly competing with Chinese importers to those facing lower competitive pressure, over a five-year period before and after initial Chinese market entry. We find that incumbent U.S. firms significantly increase their quality-weighted patent production, create more newproduct patents, and strategically diversify into new technological and business segments when confronted with heightened competition. Our findings highlight the role of import-driven rivalry in stimulating strategic innovation and illustrate how text-based similarity measures can effectively quantify firm-level competition, providing novel methodological tools for strategy scholars.

Pages: 47
Date: 2025-05-23
Note: paper number MSI_2504
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Published in FEB Research Report MSI_2504, pages 1-47

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