Technological regimes and demand structure in the evolution of the pharmaceutical industry. A History Friendly Model

Luigi Orsenigo, IUSS (University Institute for Advanced Studies), Pavia, Italy

This paper examines how the nature of the technological regime governing innovative activities and the structure of demand interact in determining market structure, with specific reference to the pharmaceutical industry. The key question concerns the observation that—despite high degrees of R&D and marketing-intensity—concentration has been consistently low during the whole evolution of the industry. Standard explanations of this phenomenon refer to the random nature of the innovative process, the patterns of imitation, and the fragmented nature of the market into multiple, independent submarkets. We delve deeper into this issue by using an improved version of our previous “history-friendly” model of the evolution of pharmaceuticals. Thus, we explore the way in which changes in the technological regime and/or in the structure of demand may generate or not substantially higher degrees of concentration. The main results are that, while technological regimes remain fundamental determinants of the patterns of innovation, the demand structure plays a crucial role in preventing the emergence of concentration through a partially endogenous process of discovery of new submarkets. However, it is not simply market fragmentation as such that produces this result, but rather the entity of the “prize” that innovators can gain relative to the overall size of the market. Further, the model shows that emerging industry leaders are innovative early entrants in large submarkets

About the speaker
Luigi Orsenigo is Professsor of Applied Economics at IUSS (University Institute for Advanced Studies), Pavia, Italy since November 2011. He is also Fellow of CRIOS, , Bocconi University, Milan, Italy and from 2004 to 2012 Honorary Fellow, School of Social and Political Studies, University of Edinburgh. His work concerns mainly the economics of innovation, industrial dynamics, evolutionary economics and the bio-pharmaceutical industry. He is author of The Emergence of Biotechnology", Pinter Publishers, London, 1989; The Economics of Biotechnology (editor, with M. McKelvey), Edward Elgar, Cheltenham, 2006; Leveraging Science for Innovation. Swedish Policy for University-Industry Collaboration, (con M. Jacob), 1990-2005”, SNS, Stockholm, 2007. He has published several articles on major international journals. He is Editor of the Journal of Evolutionary Economics; Advisory Editor of Research Policy and Associate Editor of Industrial and Corporate Change

Venue: Room A1.23 (Tongersestraat 53)

Date: 28 February 2013

Time: 12:00 - 13:30  CEST