Trials and Terminations: Learning from Competitors’ R&D Failures

Joshua L. Krieger ()
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Joshua L. Krieger: Harvard Business School, Boston, Massachusetts 02163

Management Science, 2021, vol. 67, issue 9, 5525-5548

Abstract: I analyze project continuation decisions where firms may resolve uncertainty through news about competitors’ research and development (R&D) failures, as well as through their own results. I examine the tradeoffs and interactions between product-market competition and technological learning from parallel R&D projects. Leveraging the biopharmaceutical industry’s unique characteristics to overcome barriers to measuring project-level responses, I use a difference-in-differences strategy to evaluate how competitor exit news alters a firm’s own project discontinuation decisions. The findings reveal that technological learning dominates competition effects. Firms are most sensitive to competitor failure news from within the same market and same technology area—more than doubling their propensity to terminate drug development projects in the wake of this type of information. Finally, I explore how levels of competition, uncertainty, and opportunities to learn moderate the response to competitor failure news.

Keywords: research and development: project selection; research and development: innovation; industrial organization: market structure; firm strategy; and market performance; organizational studies: decision making; industries: pharmaceutical (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:9:p:5525-5548

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