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

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. This paper was accepted by Joshua Gans, business strategy.

• Publication year

  2021

• Venue

  Management Sciences

• Publication date

  2021-02-15

• Fields of study

  Engineering, Business, Economics, Computer Science

• Identifiers
  DOI 10.1287/MNSC.2020.3775
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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