Economics and Management of Innovation Seminar

Seminar with Marco Giarratana, Universidad Carlos III de Madrid.

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

Abstract:

We investigate the impact of rivals’ actions along two dimensions, namely incremental product innovation and new advertising, on a firm’s market value in the context of mature product markets.

Our test-bed is the carbonated soft drink market between 1999 and 2003, a period characterized by an almost duopoly between Coca-Cola and Pespi. Empirically, we focus on new incremental product announcements as a proxy of incremental product innovation and on filed trademarks as a measure of new advertising efforts.

We find that rival efforts in incremental product innovation produce a negative impact on a firm Tobin's q. Our evidence highlights also that the effect of rival new advertising efforts on a firm’s financial market value is positive. Finally, we find that the effect of new advertising is channeled exclusively through market-size dynamics, while that of incremental product innovation through market-share dynamics only.

The paper is co-authored by Andrea Fosfuri.

This seminar is part of the IVS/CBS Economics and Management of Innovation Seminar Series organized by Keld Laursen, Serden Özcan, Finn Valentin and Mark Lorenzen. For more information on this seminar series, please contact us.