Technology, market structure and intellectual property rights: Evidence from the pharmaceutical industry

Abstract

This paper looks at the role of intellectual property rights in determining the relationship between market structure and R&Dintensity. Empirical evidence has for a long time provided mixed results about this relationship. Sutton's work in "Technology and Market Structure" (1998) presented a seminal contribution in the field. His theory suggests that whether concentration is high in R&Dintensive industries essentially depends on the substitutability of products associated with different technologies. If substitutability is high then an increase in the effectiveness of R&D increases the lower bound to concentration; otherwise concentration may stay low. We argue that in those industries where knowledge can be securely transferable this relationship is not robust. Furthermore we present empirical evidence from the pharmaceutical industry that supports our hypothesis.