Intellectual Property Rights and Market Entry Incentives: Evidence from the Pharmaceutical Industry

Abstract

This study investigates the impact of a sudden reduction in the strength of the intellectual property rights (IPR) environment on market entry and the launch of new innovative products by startup, diversifying and incumbent firms benefitting from different types of complementary assets and technological resources. We use a difference-in-differences empirical design relying on the exogenous invalidation of gene patents in the United States by a 2013 Supreme Court decision and the uninterrupted validity of gene patenting in European Union countries between 2005 and 2018. We find that a reduction in the strength of the IPR environment leads to an increase in entry in existing markets by startup firms, diversifying firms without specialised technological resources and diversifying firms with specialised technological resources. Moreover, the launch of new innovative products by incumbent firms appears to be moderately affected by IPR invalidation as the rate at which they launch such products remains high, but nevertheless decreases over time. Our empirical results are most convincing for diversifying firms that benefit from complementary assets, but lack specialised technological resources. Our findings contribute to the literatures on technology commercialisation strategy and related diversification by showing that complementary assets and specialised technological resources allow startup and diversifying firms to enter existing technological markets and displace incumbents in weak IPR environments.