Research Productivity in the Japanese Pharmaceutical Industry: Economies of Scale, Economies of Scope and Spillovers

Abstract

We examine the relationship between firm size and research productivity in the Japanese top ten pharmaceutical firms for the years 1981-1994. By using the number of successful patents as research performance measure, we find significant returns to scope in drug discovery research. We also find nearly constant returns to scale at the individual therapeutic level. These findings suggest that Japanese pharmaceutical firms are relatively small in terms of research scope, regardless of firm size per se. The Japanese firms may be able to enlarge the scope of research without suffering from marginal productivity decline at the firm level. Concerning knowledge spillovers, we find positive correlation between domestic competitors ’ research spending and individual firm’s patenting. But we detect negative correlation between research expenditures of large western pharmaceutical firms and the Japanese firms ’ patenting. This suggests that appropriation mechanism of patent may be very effective in drug discovery research, and may predominate over probable knowledge spillovers among pharmaceutical firms especially in globally patented drug discovery research.

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