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R&D in the pharmaceutical industry: A world of small innovations

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  • Beatriz Domínguez
  • Juan José Ganuza

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  • Gerard Llobet

Abstract

It is commonly argued that in recent years pharmaceutical companies have directed their R&D towards small improvements of existing compounds instead of more risky drastic innovations. In this paper we show that the proliferation of these small innovations is likely to be linked to the lack of market sensitivity of a part of the demand to changes in prices. Compared to their social contribution, small innovations are relatively more profitable than large ones because they are targeted to the smaller but more inelastic part of the demand. We also study the effect of regulatory instruments such as price ceilings, copayments and reference prices and extend the analysis to competition in research.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 936.

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Date of creation: Dec 2005
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Handle: RePEc:upf:upfgen:936

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Web page: http://www.econ.upf.edu/

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Keywords: Health-care; pharmaceuticals; innovation;

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Citations

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Cited by:
  1. Beatriz Domínguez & Juan José Ganuza & Gerard Llobet, 2005. "R&D in the pharmaceutical industry: A world of small innovations," Economics Working Papers 936, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Antonio Cabrales & Sergi Jiménez-Martín, 2007. "The determinants of pricing in pharmaceuticals: Are U.S. prices really higher than those of Canada?," Economics Working Papers 1032, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Antonio Cabrales & Sergi Jiménez-Martín, 2008. "The Determinants of Pricing in Pharmaceuticals: Are U.S. prices really so high?," Working Papers 2008-18, FEDEA.
  4. Jose Ceron & Javier Suarez, 2006. "Hot And Cold Housing Markets: International Evidence," Working Papers wp2006_0603, CEMFI.
  5. de Frutos, Maria-Angeles & Ornaghi, Carmine & Siotis, Georges, 2010. "Competition in the Pharmaceutical Industry: How do Quality Differences Shape Advertising Strategies?," CEPR Discussion Papers 8076, C.E.P.R. Discussion Papers.
  6. Fumagalli, Chiara & Motta, Massimo & Rønde, Thomas, 2009. "Exclusive dealing: the interaction between foreclosure and investment promotion," CEPR Discussion Papers 7240, C.E.P.R. Discussion Papers.
  7. Javier Diaz-Gimenez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms in the U.S.: a Boon for the Income Poor," Computing in Economics and Finance 2006 400, Society for Computational Economics.
  8. Pedro Pita Barros & Xavier Martinez-Giralt, 2006. "On insurance and the cost-sharing of pharmaceutical R&D," Working Papers 293, Barcelona Graduate School of Economics.

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