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Does the market for ideas influence the rate and direction of innovative activity? Evidence from the medical device industry
Author(s) -
Chatterji Aaron K.,
Fabrizio Kira R.
Publication year - 2016
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.2340
Subject(s) - exploit , work (physics) , quality (philosophy) , product (mathematics) , shock (circulatory) , industrial organization , product innovation , business , economics , marketing , computer science , medicine , engineering , mechanical engineering , philosophy , geometry , computer security , mathematics , epistemology
Prior work argues that the “market for ideas” supports an open system of innovation, allowing for efficient development of technology across firms. Although this literature has described important features of this market, how it influences the rate and direction of innovation remains an open question. We exploit an exogenous shock to a subset of U.S. medical device firms to study this question. We first document the breakdown in the market for ideas after a federal investigation made it more difficult for the leading orthopedic firms to work with physician‐inventors. We then present evidence of a dramatic decline in the rate of innovation for these firms. Further, a marked shift in direction occurs toward lower‐quality inventions and away from product categories where physician knowledge is critical . Copyright © 2014 John Wiley & Sons, Ltd.