CERGAS Seminar "Do Product Safety Issues Drive Innovation? The Effect of Medical Device Recalls on Market Dynamics"

Medical devices are critical to the delivery of health care, but malfunctioning products can pose threats to patients and necessitate product recalls. In addition to the negative direct effects of medical device recalls for the recalling firm—including reputational and financial impacts—there may be negative spillover effects related to product development. In particular, the vacuum left by the recalled product may incentivize other firms to introduce new medical devices to the market. This study examines the impact of serious medical device recalls on subsequent new product development, as measured by new medical device submissions to the FDA. We compile data from multiple regulatory databases of recalls, adverse events, and new product submissions for medical device manufacturers over a 17-year period, and implement panelized negative binomial fixed effect models that incorporate institutional features of the FDA’s clearance process. We find that serious recalls increase new product submissions in the affected product market: in particular, a single recall increases subsequent competitor submissions by approximately eight percent. We further find that this relationship attenuates in markets with more active competitors. Our results indicate that firms may currently undervalue actions to avoid product recalls, and suggest that the medical device market may be improved by regulatory efforts to enhance transparency in the recall process.

Speaker:

Dr. Ariel Dora Stern is the Alexander von Humboldt Professor for Digital Health, Economics and Policy at the Hasso Plattner Institute. Previously she spent ten years on the faculty of Harvard Business School. Ariel’s research focuses on innovation and technology management in health care. Formerly, she served as the Director for International Health Care Economics at the Health Innovation Hub, an independent think tank of the German Ministry of Health. She is a member of the Advisory Board of the Peterson Health Technology Institute and the Max Planck Institute for Innovation and Competition and advises numerous health care startups.

Link zoom:

https://unibocconi-it.zoom.us/j/97878206563?pwd=WFaA5124EpN2aLbGPZak3WbkgaIQkR.1

Meeting ID:

978 7820 6563

Passcode:

153081

Lunch at the end of the meeting: for those willing to participate in person, click here before the 26th of March.