Dynamic Competition in the Pharmaceutical Sector

Abstract: The innovative efforts of the pharmaceutical sector have provided society with numerous new remedies and medicines. Innovation is considered to be of key importance to the sector. The aim of the thesis is to analyse how the relevant legal frameworks should be developed to account for the innovative need of the sector. In order to develop these frameworks it is important to understand the underlying economic theory. Traditionally, economic theory is focused on static competition. This kind of economic theory is not able to account for innovation, which is why an innovation based economic theory is necessary. Joseph Schumpeter developed the theory of dynamic competition. Dynamic competition focuses on innovation as the most important aspect of economic theory, which makes it an appropriate theory for the pharmaceutical sector. However, due to the nature of the pharmaceutical industry, dynamic competition has to be viewed from a product market/ research area perspective. The analysis of the pharmaceutical sector and the innovation process shows us the importance of an efficient patent framework as well as provides a structure for the antitrust analysis to focus on. Due to the inefficiencies of the current patent framework changes for a new centralized European framework has been proposed. The inefficiencies in the current patent give companies the opportunity to abuse the system. The proposed changes would make it easier to deal with these kinds of abuses. However, instead of replacing the current inefficient system a third system is introduced. Even though there might be some justification for doing so, it is argued in the thesis that these issues could as well have been dealt with under one system. The proposed changes also give rise to discussion regarding the interplay between the antitrust and the patent frameworks. The antitrust framework has traditionally been based on static competition. When assessing anticompetitive behaviour in the pharmaceutical sector the antitrust analysis will have to account for the innovative nature of the sector, which means that an antitrust analysis that is based on dynamic competition is needed. The theories on dynamic competition has been developed further, and focus have been shifted from only being on innovation to also include detailed analysis of the dynamic capabilities of a company. The success of a company will depend as much on these capabilities as on the actual innovation. For this reason it is important that antitrust analysis considers dynamic capabilities and does not only focus on innovation. The thesis divides the pharmaceutical sector and the innovation process in different segments that needs to be considered by the antitrust analysis. Finally, further developments of the relevant legal frameworks are suggested.