DYNAMIC ENTRY WITH DEMAND AND SUPPLY SIDE SPILLOVERS

Yong Tan

Contemporary Economic Policy, 2019, vol. 37, issue 1, 86-101

Abstract: Supply side spillovers have been used to explain firms' entry behavior in the pharmaceutical industry. In contrast, demand side spillovers have received less attention. This paper identifies supply and demand spillovers using a dynamic model of strategic interaction. The results indicate that demand side spillovers are more significant than the supply side spillovers to generic drug firms, and the demand side spillovers increase a firm's market share by 3%–4% on average in subsequent market entry. In addition, with supply side spillovers alone, lowering entry barriers can increase future entry rates, while in the case of demand side spillovers, lowering entry barriers will have the opposite effect. (JEL L110, L130, D220)

Date: 2019
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