Incentivizing Novelty in Antibiotic Development - Job Market Paper

In antibiotics, a constant supply of new products is needed as bacteria become resistant to the existing drugs. I estimate the effectiveness of innovation incentives for antibiotics, introduced in 2012. In a difference-in-differences framework, I find that the incentives have a positive effect on clinical trial success rates, but only for projects using known technologies. To assess the long-term effect of the incentives on market entry, I set up a dynamic structural model of pharmaceutical innovation. The multi agent setting of the model allows the firm decisions to depend not only on the projects’ expected cost and profit, but also on the outcomes of technologically close projects. Counterfactual simulations show a 20% increase in the number of market entries due the current incentive scheme, driven mostly by research subsidies.

Presentations: Workshop on the Economics of Antibiotics, Toulouse; INAMRSS/CeBIL AMR Workshop, Copenhagen

Mergers and Advertising in the Pharmaceutical Industry (with Pierre Dubois)

In many industries, market structure determines how firms not only compete in terms of prices but also utilize promotional activities. We study how price and advertising strategies change when firms merge in pharmaceutical markets in the US. We show that across all drug markets, although mergers indeed increase prices, advertising spending also decreases. Merger simulations not accounting for advertising reductions may thus obtain biased price effects. Considering the merger effects of two large pharmaceutical companies on an antimicrobial drug market, we estimate a structural model of supply and demand and simulate the merger effect. We find that the merger effect on prices is smaller given the reduction in the amount of advertising. We also provide a simple method through which to evaluate long-term welfare effects using some known value of the sensitivity of innovation to profits.

Presentations: MaCCI Annual Conference, Mannheim; ENTER Seminar, Stockholm School of Economics; EEA, Milan; EARIE, Vienna;

Work in Progress:

Drug Shortages (with Pierre Dubois)

Mergers and Innovation in the Pharmaceutical Industry (with Pierre Dubois)