Responding Strategically to Competitors' Failures: Evidence from Medical Device Recalls & New Product Submissions

Harvard Business School Working Paper 19-028

Georgetown McDonough School of Business Research Paper No. 3251630

35 Pages Posted: 12 Oct 2018 Last revised: 19 May 2022

See all articles by George Ball

George Ball

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

Jeffrey T. Macher

Georgetown University - McDonough School of Business

Ariel Dora Stern

Harvard Business School

Date Written: September 13, 2018

Abstract

Medical device firms operate at the frontiers of innovation. When functioning properly, innovative medical devices can prolong and improve lives; when malfunctioning, the same devices may harm patients and lead to product recalls. Product recalls create significant challenges for firms, but simul-taneously generate potentially lucrative opportunities for their competitors. Using the U.S. medical device industry as an empirical setting, we develop predictions and provide evidence that competitor recalls increase unaffected firms’ new product submission activities, establishing a previously un-examined relationship between product failures and product submissions. To tease out potential mechanisms, we examine how the number of competitors in a specific product market influences this relationship. We find that firms increase new product submissions after competitor firm failures in markets that have fewer competitors and, as such, represent the greatest opportunities to increase revenues and profits and capture vulnerable market share. Recalls thus not only create internal problems for firms, but also incentivize their competitors.

Suggested Citation

Ball, George and Macher, Jeffrey T. and Stern, Ariel Dora, Responding Strategically to Competitors' Failures: Evidence from Medical Device Recalls & New Product Submissions (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 T. Macher

Georgetown University - McDonough School of Business ( 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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