Does In-House R&D Increase Bargaining Power? Evidence from the Pharmaceutical Industry

28 Pages Posted: 22 Feb 2005

See all articles by Ashish Arora

Ashish Arora

Duke University - Fuqua School of Business; National Bureau of Economics Research; Duke Innovation & Entrepreneurship Initiative

William B. Vogt

RAND Corporation; National Bureau of Economic Research (NBER)

Ji Woong Yoon

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management; Kyung-Hee University

Date Written: 2004

Abstract

According to Gans & Stern (1999), firms engage in R&D spending, in part, in order to improve their bargaining position as buyers in the market for technology. We test this theory empirically with data from the pharmaceutical industry. We develop and estimate a structural model of R&D spending and licensing. We find that R&D spending does improve the bargaining position of licensees; although, the effect is small. In the absence of the bargaining power effect, spending on R&D would be about 6% lower than it is. We also find that entry of technology licensors reduces firms' own R&D but has a positive overall effect on innovation.

Keywords: pharmaceutical, licensing, innovation, R&D

JEL Classification: L65, 032, 034

Suggested Citation

Arora, Ashish and Vogt, William B. and Yoon, Ji Woong, Does In-House R&D Increase Bargaining Power? Evidence from the Pharmaceutical Industry (2004). Available at SSRN: https://ssrn.com/abstract=670304 or http://dx.doi.org/10.2139/ssrn.670304

Ashish Arora (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

National Bureau of Economics Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

William B. Vogt

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ji Woong Yoon

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

Kyung-Hee University ( email )

Dongdaemun-ku
Seoul, Gyeonggi-Do 446-701
Korea, Republic of (South Korea)

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