Competition and Product Development Innovation: The Case of Newly Launched Trademarks

Abstract

This paper examines the relationship between competition and product development innovation using the U.S. trademark database. We find that greater import competition spurs corporate product innovation measured by newly launched trademarks. However, such increase in foreign competition is associated with lower survival rate of new product trademarks. Moreover, firms tend to launch new trademarks in old and familiar areas in response to intensified import competition. We further show that the negative impact of competition on firm’s future performance is mitigated by product innovation. Our main results are similar when we use common domestic competition measures. Overall, our results suggest that competitive markets can promote product innovation.