PRODUCT HOPPING AND INNOVATION INCENTIVES

Jorge Lemus, Olgu Ozkul

Research output: Contribution to journalArticlepeer-review

Abstract

We study innovation incentives under “product hopping,” whereby an incumbent patents a minor modification of a pioneer drug (for example, a new delivery method) and promotes the modified version to shift demand from the original drug. We develop a model in which an incumbent races against an entrant to discover a drastic innovation. We show that product hopping can decrease the total research and development (R&D) investment for drastic innovation. Moreover, an incumbent only chooses to engage in product hopping when drastic innovation is sufficiently difficult. Although product hopping may boost ex-ante R&D for pioneer drugs, it comes at the expense of decreasing R&D for subsequent drastic innovations and consumer surplus through socially wasteful marketing expenses. Our results contribute to the policy debate on product hopping, welfare, and antitrust.

Original languageEnglish (US)
Pages (from-to)580-609
Number of pages30
JournalJournal of Competition Law and Economics
Volume19
Issue number4
DOIs
StatePublished - Dec 1 2023

Keywords

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

ASJC Scopus subject areas

  • Economics and Econometrics
  • Law

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