Recalls, Innovation, and Competitor Response: Evidence from Medical Device Firms

Harvard Business School Working Paper 19-028

Georgetown McDonough School of Business Research Paper No. 3251630

49 Pages Posted: 12 Oct 2018 Last revised: 31 Mar 2019

See all articles by George Ball

George Ball

Operations and Decision Technologies Dept, Kelley School of Business, Indiana University

Jeffrey Thomas Macher

Georgetown University - McDonough School of Business - Strategy, Economics and Policy

Ariel Dora Stern

Harvard Business School

Date Written: September 13, 2018

Abstract

Innovation and new product development are the lifeblood of firms in R&D-intensive industries, yet malfunctioning products can cause immense damage. Product failures thus create managerial challenges and opportunities for focal firms and their competitors. Focal firm failures often result in sales de-creases and cost increases associated with remedial public relations and manufacturing activities. Competitor firm failures, however, can create market opportunities and elicit strategic responses by focal firms. We develop theory and provide empirical evidence of how innovative activity changes in response to product recalls in the U.S. medical device industry. Focal firm recalls slow incremental innovation while competitor firm recalls accelerate incremental and major innovation. Recall prevention and remediation efforts are thus more important than previously suggested, due to significant competitor responses.

Suggested Citation

Ball, George and Macher, Jeffrey Thomas and Stern, Ariel Dora, Recalls, Innovation, and Competitor Response: Evidence from Medical Device Firms (September 13, 2018). Harvard Business School Working Paper 19-028 ; Georgetown McDonough School of Business Research Paper No. 3251630. Available at SSRN: https://ssrn.com/abstract=3251630 or http://dx.doi.org/10.2139/ssrn.3251630

George Ball

Operations and Decision Technologies Dept, Kelley School of Business, Indiana University ( email )

1309 E 10th St
Bloomington, IN 47405
United States

Jeffrey Thomas Macher

Georgetown University - McDonough School of Business - Strategy, Economics and Policy ( email )

335 Hariri Building
Washington, DC 20057
United States
202-687-4793 (Phone)

Ariel Dora Stern (Contact Author)

Harvard Business School ( email )

Morgan Hall 433
Harvard Business School
Boston, MA MASSACHUSETTS 02163
United States
6174952332 (Phone)

HOME PAGE: http://www.hbs.edu/astern

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