Market Size and Research: Evidence from the Pharmaceutical Industry

Dennis Byrski, Fabian Gaessler and Matthew Higgins

No 28858, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Prior literature has established a link between changes in market size and pharmaceutical innovation; whether a link exists with scientific research remains an open question. If upstream research is not responsive to these changes, the kinds of scientific discoveries that flow into future drug development could be disconnected from downstream demand. We explore this question by exploiting the effects of quasi-experimental variation in market size introduced by Medicare Part D. We find no causal relationship between market size and biomedical research in the decade following the implementation of Medicare Part D. While many factors have been shown to motivate scientists to conduct research, this result suggests that changes in market size provide no such incentive. We do find, however, limited support for a response by corporate scientists conducting applied research. Implications for pharmaceutical innovation policy are discussed.

JEL-codes: I13 I18 L65 O31 O32 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-com, nep-ind and nep-ino
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Published as Dennis Byrski & Fabian Gaessler & Matthew J. Higgins, 2022. "Market Size and Research: Evidence from the Pharmaceutical Industry," Academy of Management Proceedings, vol 2022(1).

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