Innovation and Market Structure in Pharmaceuticals: An Econometric Analysis on Simulated Data
Authored by Christian Garavaglia, Franco Malerba, Luigi Orsenigo, Michele Pezzoni
Date Published: 2014
Sponsors:
No sponsors listed
Platforms:
No platforms listed
Model Documentation:
Other Narrative
Model Code URLs:
Model code not found
Abstract
The contribution of this paper is twofold. First, it presents the
results of a ``history-friendly{''} simulation model of evolution of the
pharmaceutical industry. Second, it aims at contributing to a more
general methodological discussion about agent-based models by proposing
an econometric analysis of the results of the simulations. The case of
the pharmaceutical industry has been studied extensively by scholars
because, despite the high level of R\&D intensity, the industry has been
characterized by a relatively low levels of concentration. The model is
able to reproduce the main stylized facts of the industry in an
evolutionary perspective. In this paper we extend the analysis conducted
in two previous works (Garavaglia et al. 2012, 2013) by further
qualifying the findings with an extensive econometric investigation of
the model outputs. The paper focuses the attention on the determinants
of market structure, the innovative performance of the industry, the
diversification in multiple submarkets and the level of prices. We find
that the properties of the technological and demand regimes are key
determinants of the patterns of industry evolution and that the main
mechanisms driving the model are the random processes of search, the
discovery of new submarkets as well as the interactions between patent
protection, imitation and price competition. In addition, this paper
emphasizes how the emerging leaders in the industry are those innovative
early entrants which entered in large submarkets, showing the importance
of the first mover advantage and of the size of the ``prize{''} accruing
to innovators when they discover a new rich submarket.
Tags
Evolution
Dynamics
history-friendly model
Industry
Demand
Schumpeterian patterns
Technological regimes