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Technology, Competition and the Time of Entry: Diversification Patterns in the Development of New Drugs

Tatiana Plotnikova

No 2009-078, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: This paper empirically investigates the determinants of R&D diversification strategies in the drug industry. It enriches the existing literature by proposing to look at diversification factors, which reflect market and technological proximity of an R&D project towards other projects within a firm's portfolio as well as R&D competition factors. Additionally, the characteristics of R&D in the market where a new potential product is developed affiect future product choice. The analysis is performed for products-in-development data, merged with firms' patents, which allows us to separate project proximity in market niches from technological proximity. The results of empirical estimation support an idea that R&D diversification is governed by the economies of scope as well as the escape competition motive. Moreover, it is found that competition rather than spillovers in the niche where an R&D project is developed defines firms' decisions to diversify.

Keywords: diversification; technological diversity; relatedness; competition; R&D (search for similar items in EconPapers)
JEL-codes: L25 L65 O32 (search for similar items in EconPapers)
Date: 2009-09-29
New Economics Papers: this item is included in nep-com, nep-ino, nep-mic, nep-ppm and nep-tid
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