ABSTRACT
This chapter explains several hypotheses and associated corollaries in order to perform an integrated analysis of seven major firms in the pharmaceutical industry. The model section develops these hypotheses around the concepts of scale economies, R&D, advertising, and Total Factor Productivity. The US Pharmaceutical Industry has enjoyed economies from the aging baby boomer population, aggressive R&D, advertising and productivity efforts, and from the opportunities available in the global economy. During the 1980s, the pharmaceutical industry received a boost from the Reagan administration that lengthened the patents on prescription drugs and hastened the pace of approving generic drugs to substitute for drugs with expired patents. At the firm level, big changes such as NAFTA have not noticeably affected firms in the pharmaceutical industry relative to firms in other industries such as the textile, shoes, autos, and steel industries. The chapter focuses on the statistical results of equations that were developed to evaluate the hypotheses with data.
