Competition and innovation in pharmaceutical market: A structural model. (Job Market Paper)
Updated: Dec 11, 2019
How do pharmaceutical companies react to their competitors' R&D decisions? How do firms' characteristics affect their profitability from innovations and their ability to compete with other firms? Answering these questions can have important policy implications for antitrust or for designing incentives to promote pharmaceutical innovations. I build a structural model on pharmaceutical innovation using a data set of clinical trials, to estimate a game of incomplete information between firms. I show that firms that concentrate their resources in fewer markets are better equipped to benefit from knowledge spillovers relative to losses from product market competition. I also show that firms' size has a positive effect on profitability from innovation.