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

  • Daron Acemoglu
  • Joshua Linn

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 that a 1 percent increase in the potential market size for a drug category leads to a 4 to 6 percent increase in the number of new drugs in that category. This response comes from both the entry of generic drugs and new non-generic drugs, and is generally robust to controlling for a variety of non-profit factors, pre-existing trends

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 228400000000000002.

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Date of creation: 19 Aug 2004
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Handle: RePEc:cla:levarc:228400000000000002
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