Pharmaceutical patents : incentives for R&D or marketing?
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Date
2005-11Metadata
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- Discussion papers (SAM) [667]
Abstract
We analyse how a patent-holding pharmaceutical firm may strategically use advertising
of existing drugs to affect R&D investments in new (differentiated) drugs, and
thereby affect the probability distribution of future market structures in the industry.
Within a fairly general model framework, we derive exact conditions for advertising
and R&D being substitute strategies for the incumbent firm and show that it may
overinvest in advertising to reduce the incentive for an entrant to invest in R&D,
thereby reducing the probability of a new product on the market. In a more specific
setting of informative advertising, we show that such overinvestment incentives are
always present, and that more generous patent protection implies that a larger share
of the patent rent is spent on marketing, relative to R&D.
Publisher
Norwegian School of Economics and Business Administration. Department of EconomicsSeries
Discussion paper2005:22