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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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  1. 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.
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  7. Rosenberg, Nathan, 1974. "Science, Invention and Economic Growth," Economic Journal, Royal Economic Society, vol. 84(333), pages 90-108, March.
  8. Michael Kremer, 2002. "Pharmaceuticals and the Developing World," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 67-90, Fall.
  9. Pakes, Ariel & Schankerman, Mark, 1980. "An Exploration Into the Determinants of Research Intensity," Working Papers 80-02, C.V. Starr Center for Applied Economics, New York University.
  10. 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.
  11. Frank R. Lichtenberg, 1998. "The Allocation of Publicly-Funded Biomedical Research," NBER Working Papers 6601, National Bureau of Economic Research, Inc.
  12. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, 03.
  13. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
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  16. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
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  18. 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.
  19. repec:oup:qjecon:v:113:y:1998:i:4:p:1055-1089 is not listed on IDEAS
  20. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  21. repec:oup:qjecon:v:114:y:1999:i:3:p:941-975 is not listed on IDEAS
  22. Wooldridge, Jeffrey M., 1999. "Distribution-free estimation of some nonlinear panel data models," Journal of Econometrics, Elsevier, vol. 90(1), pages 77-97, May.
  23. 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.
  24. 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.
  25. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
  26. repec:tpr:qjecon:v:114:y:1999:i:3:p:941-975 is not listed on IDEAS
  27. 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, vol. 11(4), pages 667-703, August.
  28. 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.
  29. 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.
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