The prominent role played by patents within the pharmaceutical domain is unquestionable. In this paper we take an unusual perspective and focus on a relatively neglected implication of patents: the effect of patent-induced information disclosure (of both successes and failures) on the dynamics of R&D and market competition. The study builds upon the combination of two large datasets, linking the information about patents to firm level data on R&D projects and their outcome. Two case studies in the fields of anti-inflammatory compounds and cancer research complement our analysis. We show the important role played by patent disclosure in shaping firms technological trajectories through the possibility of reciprocal monitoring in a context of parallel research efforts, and suggest the importance of enhancing the diffusion of information concerning failures, not only to avoid wasteful duplication of innovative efforts, but also as a tool for the identification of promising research trajectories. This paper is the result of the "R&D competition" research project carried out jointly with Adrian Towse and Martina Garau of the Office of Health Economics, London, UK. A preliminary draft of the paper has been presented to the DRUID Summer Conference 2006 (Copenhagen), and to the 11th ISS Conference (Sophia-Antipolis).patent disclosure; innovation; r&d competition
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