DP13140 | Learning from failure across products

Publication Date

08/24/2018

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Abstract

Learning rates for the same or similar products differ significantly across firms. One reason for this heterogeneity may be that most firms are multiproduct firms and that they learn both within and across the products they produce and sell. Moreover, the organization of production and the technological design of (families of) products may affect the extent of learning across products. We study learning from failures within and across products in the US automotive industry, using safety recalls as a particularly costly form of product failure. We find that firms indeed learn from failure across products, but learning is faster if products use a common technological platform or are produced in a common plant. Severe product failures involving a supplier also lead to increased across-product learning. Our results shed light on the characteristics of firms’ learning from failure across products and extend the existing literature, which typically studies learning at the firm or the product level and thus misses out on an important channel for learning in manufacturing contexts.