Abstract
This paper studies the pharmaceutical production supply chain system composed of upstream and downstream pharmaceutical enterprises, and explores the impact of government subsidy strategies on the new drug research and development (R&D) decision variables and profits of pharmaceutical enterprises as well as social welfare, when considering both the horizontal spillover effects within the industry and the vertical spillover effects between industries. Comparing and analyzing the impact of these strategies including non-government subsidy strategy, pharmaceutical enterprise innovation input subsidy strategy, pharmaceutical enterprise innovative product subsidy strategy, patient price subsidy strategy, and patient medical insurance subsidy strategy. By establishing a four-stage Cournot duopoly model incorporating spillover effects, the equilibrium solutions are obtained by backward induction, and the impact of spillover effects on decision variables is investigated accordingly. Studies have shown that: (a) Government subsidy strategies can promote pharmaceutical enterprises’ R&D investment and have a positive incentive effect on the pharmaceutical enterprises’ profits and social welfare. (b) The patient medical insurance subsidy strategy is the optimal subsidy strategy, which can generate higher profits for pharmaceutical enterprises and higher social welfare. (c) The horizontal and vertical spillover effects have different effect on decision variables, enterprises’ profits and social welfare under various subsidy strategies.
Highlights
New drug had been defined as drug that has not been marketed within or outside China, according to the "Pharmaceutical Administration Law of the People’s Republic of China" (2019 version) and the "Drug Registration Regulation of China" (2020 version)
Considering the horizontal and vertical spillover effects among new drug research and development (R&D) enterprises, the equilibrium output of enterprises, innovation input, product price, enterprises’ profits and social welfare are solved under different models
This paper proposes a decision-making method of government subsidies for new drug R&D based on the government perspective, which comprehensively considers the vertical spillover effects and the horizontal spillover effects
Summary
New drug had been defined as drug that has not been marketed within or outside China, according to the "Pharmaceutical Administration Law of the People’s Republic of China" (2019 version) and the "Drug Registration Regulation of China" (2020 version). In the pharmaceutical industry, research on the impact of different government subsidy strategies on new drug R&D is important. Based on these, it has both great theoretical significance and good practical application value to research on the government subsidy strategies for new drug R&D considering spillover effects. How does the different government subsidy strategies affect the innovation input, the price of products, the profits of pharmaceutical enterprises and the social welfare. How does the horizontal and vertical spillover effects affect the decision variables of pharmaceutical enterprises and the social welfare under the different government subsidy strategies. Considering the horizontal and vertical spillover effects among new drug R&D enterprises, the equilibrium output of enterprises, innovation input, product price, enterprises’ profits and social welfare are solved under different models. The rest of this paper is organized as follows: the Section 2 is literature review, the Section 3 is symbol definition and problem description, the Section 4 is basic model, the Section 5 is comparison of equilibrium solutions of five models, the Section 6 is numerical analysis, the Section 7 is conclusion and policy implications and provides suggestions for future research
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