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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/26478
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| Title: | | Pharmaceutical patents: incentives for R&D or marketing?  |
| Authors: | | Brekke, Kurt R. Straume, Odd Rune |
| Issue Date: | | 2008 |
| Series/Report no.: | | CESifo working paper 2433 |
| 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. |
| Subjects: | | Marketing Research & Development pharmaceutical |
| JEL: | | I11 L13 O31 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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