Unpacking the effects of adverse regulatory events: Evidence from pharmaceutical relabeling |
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| Authors: | Matthew J Higgins Xin Yan Chirantan Chatterjee |
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| Institution: | 1. University of Utah, NBER & Max Planck Institute for Innovation and Competition, Cambridge, MA, USA;2. Emory University, Atlanta, GA, USA;3. Indian Institute of Management, Ahmedabad, India;4. Hoover Institution Stanford, CA, USA;1. Otago Business School, University of Otago, Dunedin, New Zealand;2. Auckland University of Technology Business School, Auckland University of Technology, Auckland, New Zealand;3. Kedge Business School, Marseille France;4. School of Management, Victoria University of Wellington, Wellington, New Zealand;1. Max Planck Institute for Innovation and Competition, Munich;2. University of California at Berkeley, NBER, and IFS-London;1. Spotify, Sweden;2. Strategic Management and Entrepreneurship, Carlson School of Management, University of Minnesota, United States;3. Sociology, Institute for Social Research, Institute for Research on Innovation & Science (IRIS), University of Michigan, United States;1. Smith School of Business, Queen’s University, Goodes Hall, 143 Union Street, Kingston, ON K7L 3N6, Canada;2. School of Humanities and Social Sciences, Indian Institute of Technology Indore, 453552, India;3. Room No. 516, Pod 1D, School of Humanities and Social Sciences, Indian Institute of Technology Indore, Simrol, Khandwa Road, Indore, Madhya Pradesh, 453552, India |
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| Abstract: | We provide causal evidence that regulation induced product shocks significantly impact aggregate demand and firm performance in pharmaceutical markets. Event study results suggest an average loss between $569 million and $882 million. Affected products lose, on average, $186 million over their remaining effective patent life. This leaves a loss of between $383 million and $696 million attributable to declines in future innovation. Our findings complement research that shows drugs receiving expedited review are more likely to suffer from regulation induced product shocks. Thus, it appears we may be trading off quicker access to drugs today for less innovation tomorrow. Results remain robust to variation across types of relabeling, market sizes, and levels of competition. |
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