IF YOU HAD ONE SHOT: SCALE AND HERDING IN INNOVATION EXPERIMENTS

We develop a simple model to show that markets with fewer, larger experimenters generate more diverse approaches to experimentation. We test the predictions of our model in data on pharmaceutical R&D data. Our results suggest that a one-unit increase in average experimenter scale increases target diversity by 0.76 standard deviations, raising the likelihood of at least one pre-clinical success by 26.8 percentage points, but lowering average success rates by 3.9 percentage points. Our findings show how the structure of firm-level experimentation shapes technological exploration and market-level outcomes.

Duke Scholars

Author Ashish Arora Fuqua School of Business