A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated.How do these problems affect the innovating firm?
A)The firm is protected by a first-mover advantage: initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs.
B)They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product.
C)Because these design flaws were not anticipated, consumers tend to be more forgiving and are likely to remain loyal to the company and its products.
D)The firm's cost increases as it improves the product but it will not be able to raise its price for fear of alienating customers. Consequently, its profits will erode although its market share remains secure.

Question

Quizplus · Accepted Answer

Design flaws or problems with the product can lead to reduced profits for the innovating firm as well as increased competition from competitors who can enter the market with a better product. While it is possible that consumers may be forgiving, this is not always the case and the impact on the firm's profits can still be significant. Additionally, the firm may incur additional costs in improving the product, which can further erode profits. The first-mover advantage may not necessarily protect the firm if the design flaws are significant enough to drive consumers to switch to a competitor's product.

A Firm That Is First to the Market with a New