Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry

By Daron Acemoglu, Joshua Linn. 2004

962 citations recorded by the source corpus.

This paper investigates the effect of (potential) market size on entry of new drugs and pharmaceutical innovation. Focusing on exogenous changes driven by U.S. demographic trends, we find that a 1 percent increase in the potential market size for a drug category leads to a 4 to 6 percent increase in the number of new drugs in that category. This response comes from both the entry of generic drugs and new non-generic drugs, and is generally robust to controlling for a variety of non-profit factors, pre-existing trends

Subfields: Economics and Econometrics, Finance, Management of Technology and Innovation

View Paper: https://www.semanticscholar.org/paper/72e30175e2750ebb585db709a54010dfab0571ea

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Citations in the corpus

What Happens When Firms Patent? New Evidence from U.S. Economic Census Data (2009, background): “The demand-pull channel for innovation was first proposed by Schmookler (1966) and is part of some models of endogenous technological change (for example, Acemoglu & Linn 2004).”
Why Working from Home Will Stick (2020, background): “Acemoglu and Lin (2004) find that exogenous increases in (anticipated) market size stimulate the entry of new drugs that serve the larger market.”
Cocreation of Value in a Platform Ecosystem: The Case of Enterprise Software (2012, background): “Investments in product and process innovations are driven in part by expectations about the potential size of the market and its growth potential (Acemoglu and Linn 2004; Cohen 1995; Schmookler 1966).”
Necessity Is the Mother of Invention: Input Supplies and Directed Technical Change (2012, background): “In the environmental literature, it has been pointed out that the impact of regulations that change the price of inputs, such as a carbon tax, will depend crucially on whether these changes generate directed technical change, and on the direction that this innovation takes (Acemoglu et al. (2012)). ”
Patent rights, product market reforms, and innovation (2015, background): “As increases in market size can have direct effects on innovation (see Acemoglu and Linn (2004), among others), we re-estimate our main model specifications on the sample where expansion-related effects are least likely to be relevant.”
Cyclical Fiscal Policy, Credit Constraints, and Industry Growth (2014, background): “We thus predict that by reducing aggregate volatility a countercyclical scal policy should have a positive impact on R&D and on the growth rate of more credit-constrained industries when credit constraint binds (more) in the low state of the world.(2) In the second part of the paper, we take our pr”
The Nascent Market for "Green" Real Estate in Beijing (2012, background): “The net effect of rising demand is that developers will have an incentive to innovate and supply such towers (Acemoglu and Linn 2004).”