Xingtan Zhang, University of Colorado Boulder; Andy Wu, Harvard Business School; and Peichun Wang, Microsoft (previously Applied Economics, The Wharton School)
Abstract: We explore the relationship between competition among downstream commercializing firms (e.g. incumbent pharmaceutical firms) and upstream innovative firms (e.g. startup biotechnology firms). We find that in an alliance regime, common in high technology industries, competition among the commercializing firms can reduce the productivity of the innovators, resulting in a net loss of societal welfare (e.g. less drugs invented and brought to market).