Product Hopping and Innovation Incentives

Jorge Lemus, Olgu Ozkul

Research output: Working paper


We study innovation incentives in the presence of "product hopping," whereby the incumbent patents a minor modification of a drug (e.g., a new delivery method) and invests in marketing to switch demand towards the minor modification. In our setting firms compete sequentially to discover two innovative drugs. The winner of the first R&D race (the incumbent) can alter the market structure that follows the second R&D race through product hopping. This can increase investments during the second R&D race when product hopping softens competition or when the incumbent benefits from becoming a multi-product monopolist. The change in expected continuation values can increase or decrease investments during the first R&D race. Thus, the welfare effect of product hopping is ambiguous. We discuss our results in the context of the current policy debate on product hopping, welfare, and antitrust.
Original languageEnglish (US)
Number of pages29
StatePublished - Mar 22 2019


  • innovation
  • R&D
  • patents
  • strategic deterrence
  • pharmaceuticals
  • evergreening
  • marketing
  • product hopping


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