The increasing use of patents as strategic weapons motivates investigation on the impact of innovation on competition.
We study the impact of own patents and incumbents'patents in the decision to launch new products in the U.S. pharmaceutical cardiovascular sub-markets in the period 1988-1998, using a panel probit model. We use Intercontinental Marketing Services (IMS) health data for this study.
Our results show that the number of own lagged patents encourage entry, while patents held by incumbents have countervailing effects: on the one hand the initial stock discourages entry, on the other hand, recent patents promote entry through the opening of new technological opportunities.
This paper contributes to the debate by focussing on the impact of innovation on competition. We measure the level of competition with the probability to launch a new product into a specific submarket. In particular the paper studies the impact of patents on entry in six cardiovascular submarkets in the US pharmaceutical sector in the period 1987-1998, trying to understand if patents are a signal of competition fear, an instrument for disclosing information or signaling market dynamism.
Moreover by shedding light on the relationship of innovation (measured by patents) and competition, we try to disentangle the effect of companies' own patents and incumbents' patents.
This analysis can be considered as a step forward compared to the previous literature, for example Cockburn and MacGarvie (2011), since it is a first attempt to replicate for the pharmaceutical sector a deep disentanglement for patents' effects (own and competitors'patents) related to a specific sub-market.