Competition and Innovation: A Structural Model using the Pharmaceutical Market. (Job Market Paper)
Updated: Apr 12
How do pharmaceutical companies react to their competitors' R\&D decisions? How do firms' experiences and their characteristics affect their profitability from innovations? Answering these questions can have important policy implications for antitrust or for designing incentives to promote pharmaceutical innovations. I built a structural model for pharmaceutical innovation and used a data set of clinical trials to estimate this model. I show that the net effect of a firm's innovation on their rivals' decision to innovate in the same therapeutic area is negative. I also show that firms' past experiences in innovating in a therapeutic area have important and positive effects on their profits, while other observable characteristics do not have a significant effect.