Patents as a Spur to Subsequent Innovation? Evidence from Pharmaceuticals

Duncan S. Gilchrist

American Economic Journal: Applied Economics, 2016, vol. 8, issue 4, 189-221

Abstract: This paper examines how an incumbent's patent protection acts as an implicit subsidy toward non-infringing substitutes. I analyze whether classes of pharmaceuticals whose first entrant has a longer period of market exclusivity (time between approval and generic entry) see more subsequent entry. Instrumenting for exclusivity using plausibly exogenous delays in the development process, I find that a one-year increase in the first entrant's market exclusivity increases subsequent entry by 0.2 drugs. The effect is stronger for subsequent entrants that are lesser clinical advances, suggesting it is driven primarily by imitation.

JEL-codes: K11 L65 O31 O34 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/app.20150373
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Citations: View citations in EconPapers (4)

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