An Eye for An Eye: A Matching Response Approach to New Product Preannouncement

Abstract

Rooted in both signaling theory and game theory, this research investigates the use of new product preannouncements in response to competitive new product preannouncements, and explores the performance implications of such reciprocal retaliation. This research regards preannouncing new products as a signaling game, and simultaneously takes both initiating and responding firms into consideration. We find a positive relationship between the stock performance of the matching response and the number of information cues released. As predicted, a negative relationship is found between the abnormal returns and the response time around responders preannouncement days. Earlier retaliatory NPPAs are proven to be more financially effective. Defenders using multiple product preannouncements have greater abnormal returns than those with single product preannouncements. The findings of the research may shed light on new product preannouncement decisions and serve as a guideline for managers to develop strategies for preannouncing new products in retaliation.