R&D in the Pharmaceutical Industry: A World of Small Innovations

It is commonly argued that in recent years pharmaceutical companies have targeted their research and development (R&D) at small improvements of existing compounds instead of riskier drastic innovations. In this paper, we show that the bias in the pharmaceutical industry toward small innovations might be driven by the low sensitivity of the demand. In particular, small innovations get a proportionally larger reward because pharmaceutical firms target them at the inelastic segments of the demand. As a consequence, firms find it relatively more profitable to invest in small innovations. We also study the effect on R&D incentives of marketing strategies and regulatory instruments aimed at controlling pharmaceutical expenditure.

• 저널Management Science · 55(4) · 539–551
• 토픽Pharmaceutical Economics and Policy · Economics and Econometrics
• DOI10.1287/mnsc.1080.0959
• 저자Juan‐José Ganuza, Gerard Llobet, Beatriz Domínguez