Abstract

This study examines how technology failures by leading firms influence the technological trajectories of other firms in nascent industries. Specifically, I study the autonomous vehicle (AV) industry, where camera and LiDAR technologies compete for dominance. I exploit two major failures: (1) Tesla’s 2016 camera failure, which led to the first recorded AV-related driver fatality, and (2) the concurrent camera and LiDAR failures in 2018 by Tesla and Uber, with the Uber incident marking the first AV-related pedestrian fatality. Using a difference-in-differences estimation, I find that a single technology failure prompts firms to invest in both competing technologies, with a stronger emphasis on the safer, alternative technology. However, when failures occur concurrently in both technologies, firms seek new solutions that integrate the competing technologies (technology fusion) and develop complementary technologies to achieve seamless integration of these core technologies. Further analysis shows divergent responses between technology generalist firms (handling multiple technologies) and specialist firms (specialized in a single technology). Generalist firms intensify their hedging strategy even when uncertainty increases for only one competing technology – by increasing their search for not only safer alternatives but also integrative solutions following the 2016 camera failure. Specialist firms, in contrast, show more pronounced hedging responses to concurrent failures – increasing their development of integrative solutions after the 2018 concurrent failures. This study sheds new light on the spillover effect of incumbents’ failures on the technological trajectories of other firms and highlights the nuanced association between uncertainty and firms’ hedging strategy, contributing to the literature on industry emergence, competing technologies, and technology adoption. 

Abstract

Firms in nascent industries resolve the uncertainty surrounding the development of novel technology by experimenting, and adapting their knowledge development strategies accordingly. How success and failures in experimentation influence these strategies remains unexplored. To address this gap, we study how success and failures during experimentation are associated with two adaptive strategies: knowledge exploration to incorporate new knowledge, and knowledge focus to deepen the use of current knowledge in developing novel technologies. Analyzing patent and job posting data in the autonomous vehicle industry, we find that success with prior technologies is associated with leveraging existing knowledge, whereas failures are associated with exploring new knowledge sources. Further, compared to diversifying firms, de novo firms adapt their strategies to a larger extent at high cumulative failures during experimentation.