Research and market structure: Evidence from an antibiotic-resistant pathogenic outbreak

We provide causal evidence that upstream research shocks impact unconnected downstream product markets. Focusing on the Indian pharmaceutical market, we use a natural experiment involving a publication that identified a pathogenic outbreak involving a carbapenem antibiotic resistant superbug. Consistent with theory, we find that this upstream research shock caused multinational firms selling carbapenem antibiotics in India to reduce their downstream market exposure. Rational antibiotic stewardship implies that we should observe a similar response by domestic Indian firms. Surprisingly, we observe the opposite, domestic Indian firms filled the void in the market left by multinational firms. We confirm this aggregate finding with prescription level data; Indian physicians prescribed fewer focal multinational products relative to domestic firm products. Results are robust to alternate control groups and placebo testing. Implications for antibiotic resistance, global health policy and innovation policy are discussed.