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Can R&D Input Influence Market Power? Facts about China's Pharmaceutical Manufacturing Industry

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  • Ruoya Wang
  • Yaodong Zhou

Abstract

In the pharmaceutical manufacturing industry, R&D activities play an important role in market competition. This study improves upon Klette's method based on the framework of the New Empirical Industrial Organization (NEIO) and incorporates enterprise-level R&D input as a separate input index, to verify the influence of R&D on market power. Adopting data from the China Stock Market & Accounting Research (CSMAR) database and the National Bureau of Statistics of China, the generalized method of moments (GMM) is applied. Our findings demonstrate that there is insufficient market power, as well as diseconomies of scale, in China's pharmaceutical manufacturing industry. Measuring R&D spending separately renders our estimates more accurate.

Suggested Citation

  • Ruoya Wang & Yaodong Zhou, 2021. "Can R&D Input Influence Market Power? Facts about China's Pharmaceutical Manufacturing Industry," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 177(4), pages 428-448.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2021-0015
    DOI: 10.1628/jite-2021-0015
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    More about this item

    Keywords

    enterprise-level data; economies of scale; market concentration; NEIO; R&D;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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