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 a new product can lead to reduced profits for the innovating firm and may provide an opportunity for competitors to enter the market with a better product. The first-mover advantage may not protect the firm if the design flaws are significant enough to drive consumers to switch to a competitor's product. While consumers may be forgiving to some extent, ongoing design flaws can erode customer loyalty over time. The firm may also face increased costs as it improves the product, but may not be able to raise the price without risking further customer defections.

A Firm That Is First to the Market with a New