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Patents as a Spur to Subsequent Innovation? Evidence from Pharmaceuticals

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  • Duncan S. Gilchrist

Abstract

This paper examines how an incumbent's patent protection acts as an implicit subsidy toward non-infringing substitutes. I analyze whether classes of pharmaceuticals whose first entrant has a longer period of market exclusivity (time between approval and generic entry) see more subsequent entry. Instrumenting for exclusivity using plausibly exogenous delays in the development process, I find that a one-year increase in the first entrant's market exclusivity increases subsequent entry by 0.2 drugs. The effect is stronger for subsequent entrants that are lesser clinical advances, suggesting it is driven primarily by imitation.

Suggested Citation

  • Duncan S. Gilchrist, 2016. "Patents as a Spur to Subsequent Innovation? Evidence from Pharmaceuticals," American Economic Journal: Applied Economics, American Economic Association, vol. 8(4), pages 189-221, October.
    • Handle: RePEc:aea:aejapp:v:8:y:2016:i:4:p:189-221
    Note: DOI: 10.1257/app.20150373
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    Citations

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    Cited by:

    1. Kyle, Margaret K., 2022. "Incentives for pharmaceutical innovation: What’s working, what’s lacking," International Journal of Industrial Organization, Elsevier, vol. 84(C).
    2. Walker Hanlon & Taylor Jaworski, 2022. "Spillover Effects of Intellectual Property Protection in the Interwar Aircraft Industry," The Economic Journal, Royal Economic Society, vol. 132(645), pages 1824-1851.
    3. Krasteva, Silvana & Sharma, Priyanka & Wang, Chu, 2020. "Patent policy, imitation incentives, and the rate of cumulative innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 509-533.

    More about this item

    JEL classification:

    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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