Abstract
This study investigates the interdependencies between market concentration, research and development (R&D) investments, and strategic marketing expenditures within the global biopharmaceutical industry. Merging structural industrial organization techniques with dynamic marketing models, we develop and estimate an empirical dynamic game where forward-looking multi-product pharmaceutical firms jointly determine innovation pipelines, direct-to-consumer advertising, and physician-directed detailing under varying market structures. Utilizing an extensive longitudinal panel of top pharmaceutical firms spanning 2005 to 2022 across 18 major therapeutic categories, our structural estimations reveal an inverted-U relationship between therapeutic-level market concentration (measured via the Herfindahl-Hirschman Index) and R&D intensity, moderated significantly by marketing expenditure elasticities. Counterfactual merger simulations suggest that while moderate horizontal consolidation initially preserves exploratory R&D through capital scale economies, excessive concentration shifts resource allocation away from early-stage drug discovery toward aggressive defensive commercialization and life-cycle management marketing. These strategic shifts yield substantial consumer welfare losses over long time horizons due to reduced breakthrough therapeutic entry, despite short-term informational gains from marketing promotions. Our findings offer crucial policy insights for antitrust enforcement, patent length calibration, and value-based commercialization strategies at the nexus of economics and marketing.
