Imitation and innovation new biologics,biosimilars and biobetters

ABSTRACT

Biopharmaceutical drugs are the future of the pharmaceutical industry. The United States is the world leader in the development of new biopharmaceutical products. These original new drugs, numbering close to 200, are now losing patent protection and imitators from several countries are entering the markets of comparable drugs, called biosimilars. Some companies are improving the original product, and these drugs are called biobetters. Even among the producers of biosimilars one finds different strategies, and these are linked to different government regulations concerning the approval of these products. Some biosimilar companies are aiming at developed-country markets (North America, the European Union and Japan), while other producers are targeting emerging, less-regulated markets. This introduction will present the dynamic picture of an industry in transition. The paper has a double aim: discuss the fuzzy frontier between imitation and innovation, and track the new contours of the pharmaceutical industry.     

Which one should I imitate?

An individual repeatedly faces the same decision. Payoffs generated by his available actions are noisy. This individual forgets earlier experience and is limited to learn by observing current success of two other individuals. We select among behavioral rules that lead an infinite population of identical individuals in the long run to the expected payoff maximizing action. Optimal behavior requires learning by imitation. The second most successful in a sample must sometimes be imitated although the most successful will always be imitated with a higher probability. Inertia is optimal. When each individual follows an optimal rule, then the population evolves according to an aggregate monotone dynamic.     

Imitation and the role of information in overcoming coordination failures

We consider minimum-effort games played in an arbitrary network. For a family of imitation behavioral rules, including Imitate the Best and the Proportional Imitation Rule, we show that inefficient conventions arise independently of the interaction structure, if information is limited to the interaction neighborhoods. In the presence of information spillovers, we provide a condition on the network structure that guarantees the emergence of efficient conventions. In contrast, if this condition is violated we will observe inefficient conventions, even in the presence of information spillovers.     

Adaptive learning,endogenous uncertainty,and asymmetric dynamics

I present a simple model where forecasting confidence affects aggregate demand. It is shown that this model has similar stability properties, under statistical and evolutionary learning, as a model without a confidence affect. From this setup, I introduce “Expectational Business Cycles” where output fluctuates due to learning, heterogeneous forecasting models and random changes in the efficient forecasting model. Agents use one of two forecasting models to forecast future variables while heterogeneity is dictated via an evolutionary process. Increased uncertainty, due to a shock to the structure of the economy, may result in a sudden decrease in output. As agents learn the equilibrium, output slowly increases to its equilibrium value. Expectational business cycles tend to arrive faster, last longer and are more severe as agents possess less information.     

Imitation by price and quantity setting firms in a differentiated market

We study the evolution of imitation behaviour in a differentiated market where firms are located equidistantly on a (Salop) circle. Firms choose price and quantity simultaneously, leaving open the possibility for non-market-clearing outcomes. The strategy of the most successful firm is imitated. Behaviour in the stochastically stable outcome depends on the level of market differentiation and corresponds exactly with the Nash equilibrium outcome of the underlying stage game. For high level of differentiation, firms end up at the monopoly outcome. For intermediate level of differentiation, they gravitate to a “mutually non-aggressive” outcome where price is higher than the monopoly price. For low level of differentiation, firms price at a mark-up above the marginal cost. Market-clearing always results endogenously.     

Innovation and imitation as an interactive process

This article deals with the problem of the coexistence of innovators and imitators in a competitive market. The study proposes a model of innovation and diffusion of productive knowledge as an interactive process between innovators and imitators under conditions of dynamic uncertainty. The process can be modelled as a Stackelberg game, where the innovator acts as a leader in choosing whether to share knowledge or set up private protection and the imitator as a follower in choosing when becoming active. Under these conditions, activation thresholds are derived for both innovators and imitators. If protection policies are effective, the imitator can be trapped into an inaction region by the innovator. Thus, there will be two regimes without and with diffusion, according to whether the inaction region is enacted or not. Under these conditions, discovery and diffusion appear to be dynamic complements, as a higher speed of activation of innovating firms is favoured by a higher level of imitation and a higher speed of activation of imitating firms is favoured by a higher level of discoveries. In order to explore some of the quantitative implications of these results, the paper also proposes an application of the model to four European countries.     

An evolutionary analysis of insurance markets with adverse selection

The equilibrium nonexistence problem in Rothschild and Stiglitz's insurance market is reexamined in a dynamic setting. Insurance firms are boundedly rational and offer menus of insurance contracts which are periodically revised: profitable competitors' contracts are imitated and loss-making contracts are withdrawn. Occasionally, a firm experiments by withdrawing or innovating a random set of contracts. We show that Rothschild and Stiglitz's candidate competitive equilibrium contracts constitute the unique long-run market outcome if innovation experiments are restricted to contracts which are sufficiently “similar” to those currently on the market.     

南北贸易与内生增长——南方既模仿又创新

本文模型是对GH模型(Grossman and Helpman,1991)的一个拓广,不仅包括GH的情形(北方创新、南方模仿),还包括北方创新、南方既模仿又创新的情形。在后一种情形下我们发现:(1)参与国际贸易的南北双方能享受更高的增长率;(2)北方规模扩大会提高增长率、降低模仿率以及模仿企业数与北方企业数的比率;南方规模扩大会提高增长率、模仿率、南方相对工资水平,以及模仿企业数与北方企业数的比率;(3)南、北方政府资助创新会提高增长率、模仿率,但南方政府资助创新会提高南方相对工资、降低模仿企业数与北方企业数的比率,而北方自主创新的影响不确定;南方政府资助模仿的政策除提高南方相对工资外,对稳态的增长率、模仿率以及模仿企业数与北方企业数的比率都不产生任何影响。     

Innovation or imitation?: The role of intellectual property rights protections

We study how uncompensated research and development (R&D) spillovers – the leakage of proprietary information through imitation or theft – affect firms’ investment decisions. Using variation in property rights protections across different regions within China we find that (1) uncompensated spillovers are greater in regions with weaker property rights, (2) such spillovers are associated with lower R&D expenditures, and (3) the latter is exacerbated in low property rights regimes. In addition to identifying a specific channel through which legal protections affect incentives for innovation and R&D, our results support arguments in the literature that the enforcement of property rights affects firm investment and growth.     

Cooperation through imitation and exclusion in networks

We study the coevolution of networks and action choices in a Prisoners' Dilemma. Agents in our model learn about both action choices and choices of interaction partners (links) by imitating successful behavior of others. The resulting dynamics yields outcomes where both cooperators and defectors coexist under a wide range of parameters. Two scenarios can arise. Either there is “full separation” of defectors and cooperators, i.e. they are found in two different, disconnected components. Or there is “marginalization” of defectors, i.e. connected networks emerge with a center of cooperators and a periphery of defectors.