 The Search for New Drugs: A Theory of R&D in the Pharmaceutical IndustryMassoud Khazabi () and Nguyen Quyen MPRA Paper from University Library of Munich, Germany Abstract: The paper formalizes, in a rigorous manner, the concept of information externalities, by modeling R&D activities as the process of searching for a drug to treat a disease, with R&D activities being modeled from the perspective of the theory of optimal search. In conventional models of patent design, only one brand - the brand with the highest quality - is available on the market at any time. Furthermore, demand is completely inelastic: each consumer, regardless of income and regardless of the price of the brand offered on the market, buys exactly one unit of the brand. In this model, which is a dynamic model in continuous time, several differentiated products - the products whose patents are still in force and the products whose patents have expired - are available at any time on the market. Furthermore, the demand for a brand depends on income, its own price, and the prices of the other brands. The analyses of R&D as well as the impact of the cost and the quality of newly discovered drugs on the market are represented under this framework, when the pharmaceutical firms with an active drug discovery program behave strategically in both R&D and in the product market. Keywords: R&D; Patent; Spillovers (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:39462 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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