| This dissertation studies the economics of intellectual property, market structure, and innovation in the biotech industry from different perspectives. First I ask: Do biotech firms use mergers and acquisitions (M&As) to deal with patent races, patent thickets, and risk of patent litigation that is so pervasive in the industry? Policy changes in intellectual property rights during the 1980s gave rise to a surge in patenting, converted patents in bargaining tools, and increased the costs of patent litigation. Biotech firms reacted by structuring increasingly complicated alliances to address these problems. However, the cost of these complex alliances may outweigh their benefits, so that an outright merger may become a more attractive way to deal with the risk of litigation. I use patent litigation data to derive proxies for litigation risks to show that that indeed firms that are more likely to be involved in litigation are also more likely to pursue M&As.;If, as suggested, M&As alleviate patent litigation risks allowing firms to conduct R&D more freely, does that translate into more innovation? This is the second research question of this dissertation. More specifically, I ask: what is the causal effect of M&As on the number of drugs that a firm introduces?;The estimation of causal effects of M&As on innovation requires overcoming multiple challenges. First, there is time separation between M&As and product introductions, Second, there is selectivity as firms choose to merge or not. Besides, M&As do not occur at a specific point in time, but they can take place at any period and with any frequency. Finally, there is dynamic endogeneity as factors that affect the introduction of new drugs could be themselves affected by prior M&As. To address these issues I employ the Inverse Probability of Treatment Weighted method, which is widely used in biostatistics but not in economics. This approach is similar to the propensity score estimators, but applicable to dynamic treatments.;I find a negative effect of M&As on innovation. In particular, I show that a firm that has "accumulated" a larger "stock" of M&As is likely to reduce the number of drugs it introduces. |
