This dissertation is composed of two essays in product market competition. One examines the impact of product market competition on corporate product development innovation. The other one focuses on the interaction among foreign competition, major government customers and firm performance.

The first essay examines the relationship between competition and product development innovation using the U.S. trademark database. I find that greater import competition spurs corporate product innovation measured by newly launched trademarks. This positive relation is found to be more pronounced for firms with lower diversification, higher industry asset specificity, and stronger financial position. Moreover, I find that the negative impact of competition on firm’s future performance is mitigated by product innovation. I further show that more frequent product line changes brought by increase in foreign competition leads to lower survival rate of new product trademarks. Firms also tend to launch new trademarks in old and familiar areas in response to intensified import competition. My main results are similar when I use common domestic competition measures. Overall, my results suggest that competitive markets can promote product innovation.

The second essay studies the relation among foreign competition, government customers and firm performance. I show that major government customers insulated government contractors’ performance from foreign competition. I further find that the beneficial effects of major government customers are more pronounced for firms with more financial constraints and less diversification. Moreover, my results indicate that government procurements help contractors outperforms their peers in competitive environments through increasing their investment and investment efficiency and reducing their demand uncertainty. Overall, my results suggest a beneficial effect of the government’s participation in product markets.