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Can patent duration hinder medical innovation

Author

Listed:
  • Patrick Leoni

    (Kedge Business School)

  • Alvaro Sandroni

    (Northwestern University)

Abstract

We argue that, in the pharmaceutical industry, excessive patent duration can deter investments in innovative treatments in favor of me-too drugs. The point is that too-long durations foster incentives to collude to delay investments in R&D for innovative treatments. We give a set of sufficient conditions for which collusion is a subgame-perfect equilibrium; that is, the threat of punishing any deviator is credible. We then show that reducing current duration always breaks down market discipline, and so does an increase in duration for innovative treatments. Optimal patent duration must then be a trade-off between breaking down market discipline and rewarding innovation.

Suggested Citation

  • Patrick Leoni & Alvaro Sandroni, 2016. "Can patent duration hinder medical innovation," International Journal of Health Economics and Management, Springer, vol. 16(4), pages 397-406, December.
    • Handle: RePEc:kap:ijhcfe:v:16:y:2016:i:4:d:10.1007_s10754-016-9198-0
    DOI: 10.1007/s10754-016-9198-0
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    References listed on IDEAS

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    Cited by:

    1. Le, Son & Sukhatme, Neel U., 2020. "Reaching for mediocrity: Competition and stagnation in pharmaceutical innovation," International Review of Law and Economics, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Me-too drugs; Medical innovation; Patent duration; Collusion;
    All these keywords.

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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