Competition and innovation in the pharmaceutical industry: the case of generic drugs in Europe
Date
2025-01
Authors
Bronstein, Milton Andrés
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Quesada, Lucía
Journal Title
Journal ISSN
Volume Title
Publisher
Universidad de San Andrés. Departamento de Economía
Abstract
Does competition foster innovation? Within the theoretical discussion on competition, there is still no consensus on how it affects innovation. Thus, from a theoretical approach, it is not clear what competition does to firms when it comes to efforts and expenditures on R&D. I contribute by taking an empirical approach to address this question in the pharmaceutical industry, where firms rely heavily on R&D. This study finds that generic drug regulations had a mixed impact on R&D expenditures in the pharmaceutical industry in Central, Northern, Southern, and Western Europe. In the short term, they curtailed such expenditures while they increased them in the long term. These results suggest that the relationship between competition and innovation may change over time. Having considered the late market penetration of generic drugs, laws allowing or mandating INN prescribing and authorizing generic substitution seem to have a negative impact on R&D expenditures two years after their approval. However, the same laws that allowed INN prescription and generic substitution show increases in R&D expenses five years after their passage. In the medium term, companies may spend less on R&D and more on advertising their current products. However, in the long term, they will redirect these resources to the development of new products that will distance them from competitors. As a result, both consumers and policymakers might be facing a trade-off between more affordable prescribed drugs and new or better medicines available earlier.
Description
Fil: Bronstein, Milton Andrés. Universidad de San Andrés. Departamento de Economía; Argentina.