IDEAS home Printed from https://ideas.repec.org/a/oup/qjecon/v119y2004i3p1049-1090..html
   My bibliography  Save this article

Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry

Author

Listed:
  • Daron Acemoglu
  • Joshua Linn

Abstract

This paper investigates the effect of (potential) market size on entry of new drugs and pharmaceutical innovation. Focusing on exogenous changes driven by U. S. demographic trends, we find a large effect of potential market size on the entry of nongeneric drugs and new molecular entities. These effects are generally robust to controlling for a variety of supply-side factors and changes in the technology of pharmaceutical research.

Suggested Citation

  • Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(3), pages 1049-1090.
    • Handle: RePEc:oup:qjecon:v:119:y:2004:i:3:p:1049-1090.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1162/0033553041502144
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rebecca Henderson & Iain Cockburn, 1996. "Scale, Scope, and Spillovers: The Determinants of Research Productivity in Drug Discovery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 32-59, Spring.
    2. Wooldridge, Jeffrey M., 1999. "Distribution-free estimation of some nonlinear panel data models," Journal of Econometrics, Elsevier, vol. 90(1), pages 77-97, May.
    3. Galambos, Louis & Sturchio, Jeffrey L., 1998. "Pharmaceutical Firms and the Transition to Biotechnology: A Study in Strategic Innovation," Business History Review, Cambridge University Press, vol. 72(2), pages 250-278, July.
    4. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    5. Danzon, Patricia M. & Nicholson, Sean & Pereira, Nuno Sousa, 2005. "Productivity in pharmaceutical-biotechnology R&D: the role of experience and alliances," Journal of Health Economics, Elsevier, vol. 24(2), pages 317-339, March.
    6. Frank R. Lichtenberg, 2001. "The Allocation of Publicly Funded Biomedical Research," NBER Chapters, in: Medical Care Output and Productivity, National Bureau of Economic Research, Inc.
    7. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G. & Lasagna, Louis, 1991. "Cost of innovation in the pharmaceutical industry," Journal of Health Economics, Elsevier, vol. 10(2), pages 107-142, July.
    8. Emmanuel M. Drandakis & Edmond S. Phelps, 1965. "A Model of Induced Invention, Growth and Distribution," Cowles Foundation Discussion Papers 186, Cowles Foundation for Research in Economics, Yale University.
    9. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    10. Ariel Pakes & Mark Schankerman, 1984. "An Exploration into the Determinants of Research Intensity," NBER Chapters, in: R&D, Patents, and Productivity, pages 209-232, National Bureau of Economic Research, Inc.
    11. Frank R. Lichtenberg & Suchin Virabhak, 2007. "Pharmaceutical-embodied technical progress, longevity, and quality of life: drugs as 'Equipment for Your Health'," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(4-5), pages 371-392.
    12. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    13. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1999. "The Induced Innovation Hypothesis and Energy-Saving Technological Change," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 941-975.
    14. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1055-1089.
    15. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-938, July.
    16. Amy Finkelstein, 2003. "Health Policy and Technological Change: Evidence from the Vaccine Industry," NBER Working Papers 9460, National Bureau of Economic Research, Inc.
    17. Rosenberg, Nathan, 1974. "Science, Invention and Economic Growth," Economic Journal, Royal Economic Society, vol. 84(333), pages 90-108, March.
    18. Franco Malerba & Luigi Orsenigo, 2002. "Innovation and market structure in the dynamics of the pharmaceutical industry and biotechnology: towards a history-friendly model," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 11(4), pages 667-703, August.
    19. Daron Acemoglu, 2002. "Directed Technical Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 781-809.
    20. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, March.
    21. Ariel Pakes & Zvi Griliches, 1980. "Patents and R and D at the Firm Level: A First Look," NBER Working Papers 0561, National Bureau of Economic Research, Inc.
    22. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
    23. Berndt Ernst R. & Cockburn Iain M. & Cocks Douglas L. & Epstein Arnold M. & Griliches Zvi, 1998. "Is Price Inflation Different for the Elderly? An Empirical Analysis of Prescription Drugs," Forum for Health Economics & Policy, De Gruyter, vol. 1(1), pages 1-45, January.
    24. Pakes, Ariel & Griliches, Zvi, 1980. "Patents and R&D at the firm level: A first report," Economics Letters, Elsevier, vol. 5(4), pages 377-381.
    25. Lichtenberg Frank R., 2002. "The Effects of Medicare on Health Care Utilization and Outcomes," Forum for Health Economics & Policy, De Gruyter, vol. 5(1), pages 1-29, January.
    26. Michael Kremer, 2002. "Pharmaceuticals and the Developing World," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 67-90, Fall.
    27. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
    28. Cockburn, Iain M. & Henderson, Rebecca M., 2001. "Scale and scope in drug development: unpacking the advantages of size in pharmaceutical research," Journal of Health Economics, Elsevier, vol. 20(6), pages 1033-1057, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Billette de Villemeur, Etienne & Versaevel, Bruno, 2019. "One lab, two firms, many possibilities: On R&D outsourcing in the biopharmaceutical industry," Journal of Health Economics, Elsevier, vol. 65(C), pages 260-283.
    2. Patricia M. Danzon & Eric L. Keuffel, 2014. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484, National Bureau of Economic Research, Inc.
    3. Bruce Rasmussen, 2010. "Innovation and Commercialisation in the Biopharmaceutical Industry," Books, Edward Elgar Publishing, number 13680.
    4. Banerjee, Tannista & Siebert, Ralph, 2017. "Dynamic impact of uncertainty on R&D cooperation formation and research performance: Evidence from the bio-pharmaceutical industry," Research Policy, Elsevier, vol. 46(7), pages 1255-1271.
    5. Casey, Gregory, "undated". "Energy Efficiency and Directed Technical Change: Implications for Climate Change Mitigation," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259959, Agricultural and Applied Economics Association.
    6. Philippe Aghion & Antoine Dechezleprêtre & David Hémous & Ralf Martin & John Van Reenen, 2016. "Carbon Taxes, Path Dependency, and Directed Technical Change: Evidence from the Auto Industry," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 1-51.
    7. Gancia, Gino & Zilibotti, Fabrizio, 2005. "Horizontal Innovation in the Theory of Growth and Development," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 3, pages 111-170, Elsevier.
    8. David M. Cutler & Ellen Meara & Seth Richards-Shubik, 2012. "Induced Innovation and Social Inequality: Evidence from Infant Medical Care," Journal of Human Resources, University of Wisconsin Press, vol. 47(2), pages 456-492.
    9. Hermosilla, Manuel & Wu, Yufei, 2018. "Market size and innovation: The intermediary role of technology licensing," Research Policy, Elsevier, vol. 47(5), pages 980-991.
    10. Bosch, Mariano & Lederman, Daniel & Maloney, William F., 2005. "Patenting and research and development : a global view," Policy Research Working Paper Series 3739, The World Bank.
    11. Isabelle Armanville & Peter Funk, 2003. "Induced innovation: an empirical test," Applied Economics, Taylor & Francis Journals, vol. 35(15), pages 1627-1647.
    12. Corrado Maria & Edwin Werf, 2008. "Carbon leakage revisited: unilateral climate policy with directed technical change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(2), pages 55-74, February.
    13. Gamba, Simona, 2017. "The Effect of Intellectual Property Rights on Domestic Innovation in the Pharmaceutical Sector," World Development, Elsevier, vol. 99(C), pages 15-27.
    14. Daron Acemoglu, 2007. "Equilibrium Bias of Technology," Econometrica, Econometric Society, vol. 75(5), pages 1371-1409, September.
    15. Sorisio, Enrico & Strøm, Steinar, 2006. "Innovation and market dynamics in the EPO market," Memorandum 12/2006, Oslo University, Department of Economics.
    16. Tannista Banerjee & Ralph Siebert, 2013. "The Impact of R&D Cooperation on Drug Variety Offered on the Market: Evidence from the Pharmaceutical Industry," Auburn Economics Working Paper Series auwp2013-20, Department of Economics, Auburn University.
    17. Carraro, Carlo & De Cian, Enrica & Nicita, Lea & Massetti, Emanuele & Verdolini, Elena, 2010. "Environmental Policy and Technical Change: A Survey," International Review of Environmental and Resource Economics, now publishers, vol. 4(2), pages 163-219, October.
    18. Daron Acemoglu & David Cutler & Amy Finkelstein & Joshua Linn, 2006. "Did Medicare Induce Pharmaceutical Innovation?," American Economic Review, American Economic Association, vol. 96(2), pages 103-107, May.
    19. Gillingham, Kenneth & Newell, Richard G. & Pizer, William A., 2008. "Modeling endogenous technological change for climate policy analysis," Energy Economics, Elsevier, vol. 30(6), pages 2734-2753, November.
    20. Tannistra Banerjee & Stephen Martin, 2015. "Pharmaceutical Regulation and Innovative Performance: A Decision‐theoretic Model," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 36(3), pages 177-190, April.

    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:qjecon:v:119:y:2004:i:3:p:1049-1090.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/qje .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.