(2024). Don't Throw the Baby Out With the Bathwater: Firm Response to Downstream Product Shocks Academy of Management Proceedings, 2024 (1).
We explore how firms respond to downstream product shocks. We find that affected firms increase research and development and make additional safety-related upstream investments. These investments vary with firm capabilities and across shock severity. Competitors appear to vicariously learn and also engage in similar upstream investments in affected markets. We present evidence that these upstream investments have important performance implications. First, these investments show a positive correlation with the progression of uncommercialized upstream pipeline products into subsequent stages of R&D that received them. Second, these upstream investments are related with a reduced likelihood of encountering future downstream product shocks.
