Competition and Innovation Revisited: A Product-Level View
79 Pages Posted: 1 Oct 2020 Last revised: 28 Nov 2022
Date Written: November 20, 2020
We offer a first-ever direct test of the mechanism behind Aghion et al.’s (2005) inverted-U competition-innovation relationship. FDA awards of Breakthrough Therapy Designations (BTDs) on drugs serve as instruments for stochastic shifts in their model between neck-and-neck and unleveled status of that drug’s product (therapeutic) market. Rivals’ development hazards on their shocked projects – their innovation – increase when the shocked market is ex-ante less competitive, and vice-versa. We highlight several drivers of rival responses underlying the inverted-U, including high exposure to the shocked market, as well as rival usage of other-BTD methods-of-action (technologies).
Keywords: Competition, Product Markets, Innovation, Peer Effects, Breakthrough, Pharmaceutical Innovation
JEL Classification: L1, O31, O38
Suggested Citation: Suggested Citation