Abstract

Abstract We study innovation incentives under “product hopping,” whereby an incumbent patents a minor modification of a pioneer drug (for example, a new delivery method) and promotes the modified version to shift demand from the original drug. We develop a model in which an incumbent races against an entrant to discover a drastic innovation. We show that product hopping can decrease the total research and development (R&D) investment for drastic innovation. Moreover, an incumbent only chooses to engage in product hopping when drastic innovation is sufficiently difficult. Although product hopping may boost ex-ante R&D for pioneer drugs, it comes at the expense of decreasing R&D for subsequent drastic innovations and consumer surplus through socially wasteful marketing expenses. Our results contribute to the policy debate on product hopping, welfare, and antitrust.

Full Text
Published version (Free)

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call