Competition and Pharmaceutical Innovation: The Moderating Role of Size and Age of Leading Companies in the Market

Abstract

Despite a long period of research on the relationship between competition and innovation, contradictory observations about their relationship have been reported and there is yet no consensus on this relationship. Moreover, there have been few studies on how this relationship is affected by the characteristics of companies participating in the market. In this article, we aim to examine the relationship between competition and innovation activities, particularly in the pharmaceutical industry, and investigate how this relationship is moderated by the size and age of leading companies. By analyzing 8243 reported drug development activities and the competitive intensity of the global pharmaceutical market for 234 drug classes, we found that there is a positive linear relationship between the 1-Herfindal-Hershman Index or the number of competitors and the number of drug development projects. In addition, it was found that this relationship is negatively moderated by the size and age of the leading participating companies. Based on these findings, we discussed several implications for stimulating pharmaceutical innovations.