Technological regimes and demand structure in the evolution of the pharmaceutical industry
AbstractThis paper examines how the nature of the technological regime governing innovative activities and the structure of demand interact in determining market structure, with specific reference to the pharmaceutical industry. The key question concerns the observation that—despite high degrees of R&D and marketing-intensity—concentration has been consistently low during the whole evolution of the industry. Standard explanations of this phenomenon refer to the random nature of the innovative process, the patterns of imitation, and the fragmented nature of the market into multiple, independent submarkets. We delve deeper into this issue by using an improved version of our previous “history-friendly” model of the evolution of pharmaceuticals. Thus, we explore the way in which changes in the technological regime and/or in the structure of demand may generate or not substantially higher degrees of concentration. The main results are that, while technological regimes remain fundamental determinants of the patterns of innovation, the demand structure plays a crucial role in preventing the emergence of concentration through a partially endogenous process of discovery of new submarkets. However, it is not simply market fragmentation as such that produces this result, but rather the entity of the “prize” that innovators can gain relative to the overall size of the market. Further, the model shows that emerging industry leaders are innovative early entrants in large submarkets. Copyright Springer-Verlag 2012
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Bibliographic InfoArticle provided by Springer in its journal Journal of Evolutionary Economics.
Volume (Year): 22 (2012)
Issue (Month): 4 (September)
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Find related papers by JEL classification:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
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