Journal of Evolutionary Economics

, Volume 22, Issue 4, pp 677–709 | Cite as

Technological regimes and demand structure in the evolution of the pharmaceutical industry

  • Christian Garavaglia
  • Franco Malerba
  • Luigi Orsenigo
  • Michele Pezzoni
Regular Article
First Online:

Abstract

This paper examines how the nature of the technological regime governing innovative activities and the structure of demand interact in determining market structure, with specific reference to the pharmaceutical industry. The key question concerns the observation that—despite high degrees of R&D and marketing-intensity—concentration has been consistently low during the whole evolution of the industry. Standard explanations of this phenomenon refer to the random nature of the innovative process, the patterns of imitation, and the fragmented nature of the market into multiple, independent submarkets. We delve deeper into this issue by using an improved version of our previous “history-friendly” model of the evolution of pharmaceuticals. Thus, we explore the way in which changes in the technological regime and/or in the structure of demand may generate or not substantially higher degrees of concentration. The main results are that, while technological regimes remain fundamental determinants of the patterns of innovation, the demand structure plays a crucial role in preventing the emergence of concentration through a partially endogenous process of discovery of new submarkets. However, it is not simply market fragmentation as such that produces this result, but rather the entity of the “prize” that innovators can gain relative to the overall size of the market. Further, the model shows that emerging industry leaders are innovative early entrants in large submarkets.

Keywords

Industrial dynamics Innovation Market structure Pharmaceuticals History-friendly model 

JEL Classification

C63 L10 L65 O30 
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Notes

Acknowledgements

The authors acknowledge the financial support of the Italian Ministry for Education, Universities and Research (FIRB, Project RISC - RBNE039XKA: “Research and entrepreneurship in the knowledge-based economy: the effects on the competitiveness of Italy in the European Union”). Christian Garavaglia would like to thank the participants of the 13th Conference of the International Schumpeter Society (Aalborg, 21–24 June 2010). The authors thank two anonymous referees for their useful suggestions. The usual disclaimers apply.

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Copyright information

© Springer-Verlag 2012

Authors and Affiliations

  • Christian Garavaglia
    • 1
    • 2
  • Franco Malerba
    • 2
    • 3
  • Luigi Orsenigo
    • 2
    • 4
  • Michele Pezzoni
    • 1
    • 2
    • 5
  1. 1.University of Milano-BicoccaMilanoItaly
  2. 2.KITeS, Bocconi UniversityMilanoItaly
  3. 3.Department of Management and TechnologyBocconi UniversityMilanoItaly
  4. 4.IUSS (University Institute for Advanced Studies)PaviaItaly
  5. 5.Observatoire des Sciences et des TechniquesParisFrance

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