First-Mover Advantages Before and After TRIPS: Evidence from the Indian Pharmaceutical Industry

Abstract

Scholars argue that the presence of persistent first-mover advantages obviates the need for relatively long-lived patents as incentives for innovations. What then is the impact of the strengthening of patent protection, particularly in developing economies, on non-patent-based first-mover advantages? We investigate this question by estimating the extent of erosion of first-mover advantages in the Indian pharmaceutical industry due to the introduction of a stronger product-patent regime in January 2005. We distinguish between newly created and pre-existing markets, in which the strength of product patent protection differs systematically. Our analyses account for the endogeneity of entry order. We find evidence of erosion — as high as 50-percent — that is robust to alternative estimation strategies and definitions of dependent variables. We extend the Suarez-Lanzolla framework and highlight the role of regulatory factors on the relationship between first-mover advantages and intellectual property rights. We conclude by discussing managerial and policy implications.

Keywords: first-mover advantage, pharmaceuticals, TRIPS, India

JEL Classification: O31, O34, O38, L65