Market Size and Research: Evidence from the Pharmaceutical Industry

82 Pages Posted: 7 Jun 2021

See all articles by Dennis Byrski

Dennis Byrski

Max Planck Institute for Innovation and Competition

Fabian Gaessler

Max Planck Institute for Innovation and Competition

Matthew John Higgins

University of Utah - Department of Entrepreneurship & Strategy; National Bureau of Economic Research (NBER); Max Planck Institute for Innovation and Competition

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Date Written: May 31, 2021

Abstract

Prior literature has established a link between changes in market size and pharmaceutical innovation; whether a link exists with scientific research remains an open question. If upstream research is not responsive to these changes, the kinds of scientific discoveries that flow into future drug development could be disconnected from downstream demand. We explore this question by exploiting the effects of quasi-experimental variation in market size introduced by Medicare Part D. We find no causal relationship between market size and biomedical research in the decade following the implementation of Medicare Part D. While many factors have been shown to motivate scientists to conduct research, this result suggests that changes in market size provide no such incentive. We do find, however, limited support for a response by corporate scientists conducting applied research. Implications for pharmaceutical innovation policy are discussed.

Keywords: Scientific Research, R&D, Patents, Medicare Part D

JEL Classification: 113, 118, 031, 032, L65

Suggested Citation

Byrski, Dennis and Gaessler, Fabian and Higgins, Matthew John, Market Size and Research: Evidence from the Pharmaceutical Industry (May 31, 2021). Max Planck Institute for Innovation & Competition Research Paper No. 21-16, Available at SSRN: https://ssrn.com/abstract=3858448 or http://dx.doi.org/10.2139/ssrn.3858448

Dennis Byrski (Contact Author)

Max Planck Institute for Innovation and Competition ( email )

Fabian Gaessler

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, 80539
Germany

Matthew John Higgins

University of Utah - Department of Entrepreneurship & Strategy ( email )

1655 East Campus Center Dr.
Salt Lake City, UT 84112
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany

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