Barbie Mattel's managers were slow to adapt because they had become complacent. Barbie is a billion-dollar brand (Mattel 2014 Annual Report) and had been able to beat many prior competitors. There was no motivation for the Barbie team to change, because there were no major challengers, and it had been a long time since a viable threat to the brand had emerged. Without incentive, many managers become complacent and then they refuse to change and to innovate. The financial incentives for these managers were likely tied to profitability, and Barbie was still highly profitable. It was only after Bratz knocked Barbie's sales down 30% that the Barbie managers took notice of the threat (Pimentel, 2007).

The cognitive errors that would contribute to this would include feeling that if Barbie had been able to deflect new entrants in the past that it would be able to do so in the future. The reality is that each new competitor is different, and as a result each unique situation must be taken on its own merits. Further, there was the sense among the managers likely that what appealed to girls in the past would always hold the same appeal. They failed to recognize that...

So the managers at Barbie were suffering from insufficient motivation, but also cognitive biases that had them believe that they did not need to change, that what worked well in the past would continue to work well into the future and that Barbie did not need to be updated because their incentives were likely tied to profits, which were good.
It is not uncommon for companies that have enjoyed a long run of success to essentially rest on their laurels and hold back from pursuing change. When things are going well, it is a natural tendency to be risk averse.

There are a number of factors that governed the legal battle between MGA and Mattel over Bratz dolls. For its part, Mattel was clearly under threat, and saw the legal battle as a menas to do a couple of things. One was to financially weaken the competition -- Mattel could easily afford to outspend MGA in court, which gave Mattel advantage. Further, Mattel also would have seen that there was a chance to have the Bratz dolls taken off the market, restoring the dominnat market position for Mattel.

MGA felt that it had to do whatever…