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  • 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 (forthcoming).
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About The Author

Joshua Lev Krieger

Entrepreneurial Management
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More from the Author

    • 2021
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    Private and Social Returns to R&D: Drug Development and Demographics

    By: Efraim Benmelech, Janice Eberly, Dimitris Papanikolaou and Joshua Krieger
    • January 2021
    • Faculty Research

    Biobot Analytics

    By: Raymond Kluender, Joshua Krieger and Mitchell Weiss
    • December 2020
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    Forecasting ClimaCell

    By: Joshua Lev Krieger, Christopher Stanton and James Barnett
More from the Author
  • Private and Social Returns to R&D: Drug Development and Demographics By: Efraim Benmelech, Janice Eberly, Dimitris Papanikolaou and Joshua Krieger
  • Biobot Analytics By: Raymond Kluender, Joshua Krieger and Mitchell Weiss
  • Forecasting ClimaCell By: Joshua Lev Krieger, Christopher Stanton and James Barnett
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