title: Does Intellectual Property Restrict Output? An Analysis of Pharmaceutical Markets.
abstract: Standard normative analysis of intellectual property focuses on the balance between incentives for research and the static welfare costs of reduced price-competition from monopoly. However, static welfare loss from patents is not universal. While patents restrict price competition, they may also provide static welfare benefits by improving incentives for marketing, which is a form ofnon-price competition. We show theoretically how stronger marketing incentives mitigate, and can even offset, the static costs of monopoly pricing. Empirical analysis in the pharmaceutical industry context suggests that, in the short-run, patent expirationsreduceconsumer welfare as a result of decreased marketing effort. In the long-run, patent expirations do benefit consumers, but by 30% less than would be implied by the reduction in price alone. The social value of monopoly marketing to consumers alone is roughly on par with its costs to firms.
authors.affiliation: School of Policy, Planning, and Development, 650 Childs Way, University of Southern California, Los Angeles, CA 90089. (Tel) 213-740-6012. dlakdawa@sppd.usc.edu.
authors.forename: Darius
authors.initials: D
authors.lastname: Lakdawalla
authors.affiliation: The Irving B. Harris Graduate School of Public Policy Studies, The University of Chicago, 1155 E. 60th St., Chicago, IL 60637. (Tel) 773-502-7773. t-philipson@uchicago.edu.
authors.forename: Tomas
authors.initials: T
authors.lastname: Philipson
keywords: Advertising; Intellectual Property; Pharmaceuticals