How can companies learn from competitors’ R&D failures?

When a pharmaceutical company abandons a drug in development, its competitors are more likely to abandon projects using similar technology than ones in similar markets. But those sort of stay-or-leave decisions could be better evaluated, MIT Sloan PhD student Joshua Krieger shows in new research.

Krieger won the 2017 MIT Sloan thesis prize for showing how firms learn from and respond to competitor research and development failures. His paper, “Trials and Terminations: Learning from Competitors’ R&D Failures [PDF],” examines how news of failed phase II clinical trials affects the pharmaceutical industry. Krieger determined that firms are more likely to abandon a project if it employs a similar technology as the failed drug than if it is in the same market. Drugs that use the same technology and are in the same market are more than twice as likely to be abandoned after news of a competitor’s failure. 

As part of his work, Krieger developed an evaluation system to grade a firm’s decision to continue with or abandon a project after receiving word of a competitor’s failure. He said that system offers evidence that firms could better evaluate their own decisions and develop strategic plans for responding to the failure of a competitor’s drug. While he writes that the system is “inherently crude,” Krieger argues it can be used to examine if some characteristics of a firm or project correlate “with overall patterns of good or bad decision-making.”

How ratings websites can build user trust
To build trust, rating platforms and websites should institute longer “quiet periods” where aggregate ratings are not shown to users, and should periodically reset ratings, new research from PhD student Tristan Botelho suggests.  

Botelho earned second place for his paper, “From Audience to Evaluator: The Effect of Social Influence, Status, and Expertise in Evaluation Processes.” The paper examines how an existing online rating influences new ratings for the same business, service, or candidate. Botelho found that items with high or low early ratings are likely to continue to receive similar ratings. Raters, he said, conform to the norm.

The research has implications for online rating platforms seeking to build customer trust, Botelho said. Longer quiet periods and occasional resets of ratings can both help ensure more accurate ratings, he said.

“What does a Yelp rating for a restaurant mean 20 years later?” Botelho asked.

Krieger received $3,000 for first place. Botelho received $2,000 for second place. The pair presented their work March 17 on campus to a panel of three judges: Lynn Lei Li, PhD ’12, Ramana Nanda, PhD ’07, and Nell Putnam-Farr, PhD ’15.

Other PhD candidates presenting research at the event were Leon Valdes Saavedra, who presented “Supply Chain Visibility and Social Responsibility,” and Ben Yost, with “Locked-in: The Effect of CEOs’ Capital Gains Taxes on Corporate Risk Taking.”