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Research and Market Structure: Evidence from A Pathogenic Outbreak

Mayank Aggarwal, Anindya Chakrabarti, Chirantan Chatterjee and Matthew Higgins ()

No 28840, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Do upstream research shocks directly and contemporaneously impact related but disconnected downstream product markets? We explore this question using a natural experiment involving the New Delhi Metallo-Beta-Lactamase 1 superbug pathogenic outbreak in India. Using a difference-in-differences strategy, we find that this upstream research shock caused multinational firms selling antibiotics in India to reduce their market exposure. Surprisingly, this void was filled by domestic Indian firms. These results are bolstered by a concurrent decline in multinational prescriptions of focal products by Indian physicians relative to prescriptions for domestic firm products. We present a stylized model building on a Cournot differentiated duopoly model to explain these heterogeneous responses. Results are robust to alternate control groups, including synthetic controls, as well as placebo testing. Implications for health policy and innovation policy are discussed.

JEL-codes: I18 L1 L65 (search for similar items in EconPapers)
Date: 2021-05
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