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Pharmaceutical patents : incentives for R&D or marketing?

Brekke, Kurt Richard; Straume, Odd Rune
Working paper
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URI
http://hdl.handle.net/11250/162674
Date
2005-11
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  • Discussion papers (SAM) [676]
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 Economics
Series
Discussion paper
2005:22

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