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Persistence of innovation, technological change and quality-adjusted patents in the US pharmaceutical industry

This paper analyzes American pharmaceutical firms' persistence in innovating just before the wave of mergers and acquisitions that accompanied the "Biotech revolution". We evaluate the impact of past innovative activity on firms' innovation propensities using a non-linear GMM estimator for exponential models that allows for predetermined regressors and linear feedback. We find that innovative activity at the firm level depends strongly on the scope of past innovations. Breakthroughs in particular depend largely on past quality innovation made by firms, and this effect may likely deter further pioneering discoveries rather than strengthen incentives to invest on non cumulative R&D. The results also shed light on the importance of small firms in the dynamics of innovation in pharmaceutical industry, and suggest that large firms persist in using patents strategically to remain dominant.

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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number bla06029.

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Length: 38 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:mse:wpsorb:bla06029
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  1. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-48, September.
  2. Mohnen, Pierre & Schim van der Loeff, S. & Palm, Franz & Raymond, Wladimir, 2006. "Persistence of Innovation in Dutch Manufacturing: Is it Spurious?," MERIT Working Papers 011, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  3. Segerstrom, Paul S & Zolnierek, James M, 1999. "The R&D Incentives of Industry Leaders," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 745-66, August.
  4. Sutton, John, 1996. "Technology and market structure," European Economic Review, Elsevier, vol. 40(3-5), pages 511-530, April.
  5. Wooldridge, Jeffrey M., 1997. "Multiplicative Panel Data Models Without the Strict Exogeneity Assumption," Econometric Theory, Cambridge University Press, vol. 13(05), pages 667-678, October.
  6. Scherer, F M, 1992. "Schumpeter and Plausible Capitalism," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1416-33, September.
  7. Mark Schankerman, 1998. "How Valuable is Patent Protection? Estimates by Technology Field," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 77-107, Spring.
  8. repec:cup:etheor:v:13:y:1997:i:5:p:667-78 is not listed on IDEAS
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