This paper investigates the effect of (potential) market size on entry of new drugs and pharmaceutical innovation. Focusing on exogenous changes driven by U.S. demographic trends, we find that a 1 percent increase in the potential market size for a drug category leads to a 4 to 6 percent increase in the number of new drugs in that category. This response comes from both the entry of generic drugs and new non-generic drugs, and is generally robust to controlling for a variety of nonprofit factors, pre-existing trends, and changes in health care coverage.
No takes yet. Share an insight, caveat, or question.
Acemoğlu et al. (2003) studied this question.