Under the fierce competition global environment, manufacturing firms must engage in product innovation and enhance product quality continuously to meet consumer demand. The aim of this paper is to explicate the causal relationship between product innovation and product quality. We construct a game theory model to show that the barrier to a firm’s engaging in innovative activities, the fixed cost of innovation, is overcome only if a firm produces high-quality products. After analyzing the strategic interactions of high-quality firms, low-quality firms and consumers, the findings of this paper indicate that product quality may determine product innovation.