Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry

59 Pages Posted: 21 Oct 2003

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Joshua Linn

Massachusetts Institute of Technology (MIT) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2003

Abstract

This paper investigates the effect of (potential) market size on entry of new drugs and pharmaceutical innovation. Focusing on exogenous changes driven by U.S. demographic trends, we find that a 1 percent increase in the potential market size for a drug category leads to a 4 to 6 percent increase in the number of new drugs in that category. This response comes from both the entry of generic drugs and new non-generic drugs, and is generally robust to controlling for a variety of non-profit factors, pre-existing trends, and changes in health care coverage.

Keywords: Economic Growth, Entry, Innovation, Pharmaceuticals, Profit Incentives

JEL Classification: O31, O33, L65

Suggested Citation

Acemoglu, Daron and Linn, Joshua, Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry (September 2003). Available at SSRN: https://ssrn.com/abstract=457440 or http://dx.doi.org/10.2139/ssrn.457440

Daron Acemoglu (Contact Author)

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Joshua Linn

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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