![]() Based on this exercise, Peltzman concludes that after 1962, reduced consumer spending on ineffective drugs was outweighed by the costs associated with both more expensive pharmaceuticals and “missed benefits (consumer surplus) from the reduced flow of new drugs” ( Peltzman, 1974). Highlighting counterfactuals in which important drugs and vaccines would have been subject to post-1962 regulation and thus taken longer to reach patients, he estimates the additional mortality and morbidity cost that would have been associated with longer periods of regulatory approval for products including tuberculosis therapies, tranquilizers, and polio vaccines. Writing in response to the 1962 (“Kefauver-Harris”) amendments to the Food, Drug, and Cosmetic Act, which required new drugs to demonstrate not only safety but also efficacy before being brought to market, Peltzman argues that additional regulatory requirements increased the time and costs associated with bringing new products to market. Peltzman’s (1974) essay on the regulation of pharmaceutical innovation is perhaps one of the best-known examples. The FDA also regulates emerging classes of medical products such as biologic drugs (therapeutic proteins often referred to simply as “biologics”), nanomedicines, tissue engineered products, and the use and applications of cellular and gene therapies.Ĭriticism of FDA regulation – and in particular, regulation’s potential effects on innovation – date back several decades. food supply, cosmetics, animal products, and all ethical drugs and medical devices ( Babiarz and Pisano, 2008). ![]() The FDA regulates two trillion dollars worth of products every year, including 80 percent of the U.S. ![]() In the United States, all medical products are regulated by a single agency, the U.S. This paper explores one determinant of these incentives by considering the implications of being a first mover innovator in the context of U.S. Reductions in firms’ innovation incentives will, in turn, have a downstream effect on whether they enter new markets. (2015) find evidence of this phenomenon in cancer research and development (R&D). Industry regulation, as such, is often associated with delayed or reduced firm entry: all else equal, increasing the (expected) time and/or costs that acrue between an innovation and its commercialization will reduce incentives to innovate. ![]() In much of the health care sector as well as in ubiquitous industries such as transportation and energy, a regulator directly determines if and when a firm can enter a given market. ![]() Thus, the effect of novelty on early innovators’ market entry incentives is ambiguous. Pioneer entrants’ ability to gain and sustain market share is shaped deeply by the context of market entry. On the other hand, early innovators may pay large fixed costs in order to establish regulatory precedents in regulated industries and in doing so, allow subsequent entrants to “free ride” on the efforts and learnings of pioneers. How does entry regulation help or hinder pioneer innovators? On the one hand, first mover advantages in commercializing new technologies arise when firms can capture substantial market share, for example through exclusive patenting in settings with strong intellectual property protection. ![]()
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