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  • September 2021
  • Article
  • Management Science

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

By: Joshua L. Krieger
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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 trade-offs 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 employ 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; Projects; Failure; Decision Making; Learning

Citation

Krieger, Joshua L. "Trials and Terminations: Learning from Competitors' R&D Failures." Management Science 67, no. 9 (September 2021).
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About The Author

Joshua Lev Krieger

Entrepreneurial Management
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More from the Author
  • Find and Replace: R&D Investment Following the Erosion of Existing Products By: Joshua L. Krieger, Xuelin Li and Richard T. Thakor
  • Are Transformational Ideas Harder to Fund? Resource Allocation to R&D Projects at a Global Pharmaceutical Firm By: Joshua Krieger and Ramana Nanda
  • AppHarvest: Rebuilding the Appalachian Economy Through Agriculture By: Joshua Lev Krieger, William R. Kerr and Bailey McAfee
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