Abstract
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 language | English (US) |
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Number of pages | 29 |
DOIs | |
State | Published - Mar 22 2019 |
Keywords
- innovation
- R&D
- patents
- strategic deterrence
- pharmaceuticals
- evergreening
- marketing
- product hopping