A firm that is first to the market with a new product frequently discovers that

Question

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? 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. 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. 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. They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product.

Explanation / Answer

In this case the correct answer is D. Profits would fall and other competitors would begin to create new products that are more reliable than the flawed inventions. This will also reduce the initial flawed innovators market share

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