Innovation and firm size: the case of the pharmaceutical industry

Abstract

Using the Evolutionary concept of entrepreneurship, this paper focuses on the economic policy of innovation in the pharmaceutical industry. One important question is addressing the governments of developing countries: is the firm size determinant for the capacity to innovate? According to Schumpeter, the incentive to innovate belongs to the entrepreneur. His evolving thought on the innovating process launched a large debate on the relationship between returns to scale, market power and innovating capacity. We shall explain the advantages and the disadvantages of a large enterprise in the innovating race. A cyclical relationship between firm size and innovation can be illustrated in the pharmaceutical industry. Innovation reveals a dynamic process. Various firm sizes coexist at different stages of the technological paradigm (between the origin and the maturity). Learning by doing initiates a virtuous circle, which seems to be larger than the individual firm. Consequently, the size of the firm is a moving target. Innovation is to be linked with industrial, technological networks. Small firms are cooperating and so increasing returns to scale may appear at the level of the industrial districts. Industrial policies stimulating innovation as a competitive edge should then concentrate on creating strong incentive for small firms to cooperate. Industrial localizations may encourage technological spillovers