Racing To Invest? The Dynamics of Competition in Ethical Drug Discovery

Abstract

This paper draws on detailed internal data to explore the usefulness of the modern game theoretic literature as a source of insight into the dynamics of competition in pharmaceutical research. We find that research investment is only weakly correlated across firms once common responses to exogenous shocks are accounted for, and that rivals' research results are positively correlated with own productivity. While we cannot reject the hypothesis that investment behavior in the industry is driven by strategic considerations, these results suggest that the more extreme forms of rent dissipation identified in the literature are probably poor characterizations of the dynamics of competition in the industry.

Why Do Firms Imitate Each Other?

“…Cockburn & Henderson (1994) R&D by pharmaceutical firms R&D expenditures among firms are weakly and positively correlated.…”

Understanding perpetual R&D races

“…Conversely, it earns lower rewards when overtaken. We find, for example, such market structures in the pharmaceutical (Cockburn and Henderson, 1994), disk drive (Lerner, 1987) and semiconductor (Gruber, 1994) industries. In such industries, innovations are typically gradual.…”

“…Meron and Caves, 1991;Cockburn and Henderson, 1994). Part of the problem may be in ignoring internal and external economies of scale , but Cohen and Levin (1989) note more fundamental limitations of existing field studies: measuring strategic behavior is difficult and thus attempts are often imprecise, while R&D motivations are varied.…”

The Evaluation of Strategic Research Partnerships

“…Cockburn and Henderson study research programs of 10 pharmaceutical firms in 38 research areas. They find substantial evidence of knowledge flows across firms: 37 Some firms pursue different goals within the same general therapeutic area, while others compete more directly. In either case publication and the norms of professional disclosure appear to ensure the rapid exchange of knowledge across the industry.…”