This study examines how firms in the pharmaceutical industry responded to the R&D tax credit which was enacted in 1981. The change in research intensity (research/sales) subsequent to the tax change was estimated for the firms. An increase in research intensity was associated with the adoption of the tax credit. The strong response by the firms to the tax credit and the effort to maintain their relative position in research intensity indicate that research intensity is an important strategic dimension and driving force in the industry.
Get full access to this article
View all access options for this article.
References
1.
Aldrich, H. E. (1979). Organizations and environments. Englewood Cliffs, NJ: Prentice-Hall.
2.
Baily. M. N., Lawrence, R. Z., & Data Resources, Inc. (1985). The need for a permanent tax credit for industrial research and development: An economic assessment. Commissioned by: The Coalition for the Advancement of Industrial Technology. Presented at U.S. Senate. Pp. 75-167 in Tax reform proposals-IX. hearing before the committee on finance, 99th Congress, 1st Session, June 26, 1985.
3.
Barth, J., Cordes, J., & Tassey, G. (1984). The impact of recent changes in tax policy on innovation and R&D. Pp. 23-50 in B. Bozeman, M. Crow, & A. Link, (Eds.), Strategic management of industrial R&D. Lexington, MA: Lexington Books.
4.
Baumol. W. J., Heim. P., Malkiel. B. G., & Quandt. R. E. (1970). Earnings retention, new capital and the growth of the firm. The Review of Economicsand Statistics, 52(4): 354-355.
5.
Barzel, Y (1976). An alternative approach to the analyses of taxation. Journal of Political Economy, 84(6): 1177-1197.
6.
Branch, B. (1973). Research and development and its relation to sales growth. Journal of Economics and Business, 25(Winter): 107-111.
7.
Brown, K. M.. Ed. (1984). The R&D tax credit: Issues in tax policy and industrial innovation. Washington, DC: American Enterprise Institute for Public Policy Research.
8.
Brown, K. M. (1985). The R&D tax credit; An evaluation of evidence on its effectiveness. Joint Committee Print, S. Prt. 99-73, U.S. Congress, Joint Economic Committee. Washington, DC: Government Printing Office.
9.
10.
Caglarcan, E., Faust, R. E., & Schnee, J. E. (1976). Resource allocation in pharmaceutical research and development. Pp. 331-349 in S. Mitchell and E. Link (Eds.). Impact of public policy on drug innovation and pricing. Washington, DC: American University.
11.
Chandler, A. D., Jr. (1962). Strategy and structure. New York: Doubleday and Company.
12.
Cocks. D. L. (1979). Applied microeconomics and the business economist. Business Economics, 14(4): 55-62.
13.
Comanor. W. S. (1965). Research and technical change in the pharmaceutical industry. The Review of Economics and Statistics, 47(2): 182-190.
14.
Comanor. W. S. (1986). The political economy of the pharmaceutical industry. Journal of Economic Literature, 24(3): 1178-1217.
15.
Cool. K. O. (1985). Strategic group formation and strategic group shifts. A longitudinal analysis of the U.S. pharmaceutical industry, 1963-1982. Unpublished dissertation, Purdue University.
16.
Cool. K. O. & Schendel. D. (1987). Strategic group formation and performance: The case of the U.S. pharmaceutical industry, 1963-1982. Management Science, 33(9): 1102-1124.
17.
Cool. K. O. & Schendel. D. (1988). Performance differences among strategic group members. Strategic Management Journal, 9: 201-223.
18.
Economic Recovery Tax Act of 1981. U.S. Code, (P.L. 97-34, August 4, 1981).
19.
Eisner, R., Albert, S. H., & Sullivan, M. A. (1984). The new incremental tax credit for R&D: Incentive or disincentive?National Tax Journal, 37(2): 171-183.
20.
Fiegenbaum, A., Sudharshan, D., & Thomas, H. (1987). The concept of stable strategic time periods in strategic group research. Managerial and Decision Economics, 8: 139-148.
21.
Franko, L. G. (1989). Global corporate competition: who’s winning, who’s losing, and the R&D factor as one reason why. Strategic Management Journal, 10: 449-474.
22.
Grabowski, H. G. (1968). The determinants of industrial research and development: A study of the chemical, drug, and petroleum industries. Journal of Political Economy, 76: 292-306.
23.
Grabowski, H. G. & Mueller, D. C. (1972). Managerial and stockholder welfare models of firm expenditures. The Review of Economics and Statistics, 54(1): 9-24.
24.
Grabowski, H. G. & Vernon, J. (1981). The determinants of research and development expenditures in the pharmaceutical industry. Pp. 3-21 in R. Helms (Ed.), Drugs and health. Washington, DC: American Enterprise Institute.
25.
Hofer, C. W., & Schendel, D. (1978). Strategy formulation: Analytical concepts. St. Paul, MN: West Publishing.
26.
Jarrell. S. (1983). Research and development and firm size in the pharmaceutical industry. Business Economics, (September): 26-39.
27.
Kamien, M. I. & Schwartz, N. L. (1982). Market structure and innovation. Cambridge: Cambridge University Press.
28.
Leonard, W. N. (1971). Research and development in industrial growth. Journal of Political Economy, (March/April): 232-256.
29.
Link, A. N. (1982). An analysis of the composition of r&d spending. Southern Economic Journal, 49(2): 342-349.
30.
Lourie, A. D. (1985). Patent term restoration. Pharmaceutical Executive, (February): 44-54.
31.
Mansfield, E. (1968). Industrial research and technological innovation. New York: W.W. Norton.
32.
Mansfield, E. (1985a). Public policy toward industrial innovation: An international study of direct tax incentives for research and development. Pp. 383-407 in K. Clark, R. Hayes, & C. Lorenz (Eds.), The uneasy alliance. Boston: Harvard Business Press.
33.
Mansfield, E. (1985b). The R&D tax credit and other technology policy issues. American Economic Review,. 76(2): 190-194.
34.
Mansfield, E. & Switzer, L. (1985a). How effective are Canada’s direct tax incentives for R&D?Canadian Public Policy, 11(2): 241-246.
35.
Mansfield, E. & Switzer, L. (1985b). The effects of R&D tax credits and allowances in Canada. Research Policy, 14: 97-107.
36.
McCutchen, W. W. (Forthcoming). Estimating the impact of the R&D tax credit on strategic groups in the pharmaceutical industry. Research Policy.
37.
Nelson, R. (1959). The simple economics of basic scientific research. Journal of Political Economy, 59: 297-306.
38.
Odagiri, H. (1983). R&D expenditures, royalty payments, and sales growth in Japanese manufacturing corporations. Journal of industrial Economics, XXXII (1: 61-71.
39.
Parker, J. E. S. (1984). The international diffusion of pharmaceuticals. New York: St. Martin’s Press.
40.
Pfeffer, J. & Salancik, G. R. (1978). The external control of organizations. New York: Harper & Row.
41.
Pindyck, R. S. & Rubinfeld. D. L. (1981). Econometric models and economic forecasts, 2nd ed.New York: McGraw-Hill.
42.
Porter, M. E. (1979): How competitive forces shape strategy. Harvard Business Review, (March-April): 137-145.
43.
Saftlas. H. B. (1986). Health care. Standard and PoorsIndustry Survey, March 27.
44.
Scherer, F. M. (1976). Corporate inventive output, profits, and growth. Journal of’Political Economy, 73(3): 101-111.
45.
Scherer, F. M. (1980). Industrial market structure and economic performance, 2nd ed.Boston: Houghton Mifflin Company.
46.
Smith. K. G. & Grimm, C. (1987). Environmental variation, strategic change and firm performance: A study of railroad deregulation. Strategic Management Journal, 8: 363-376.
47.
Sudharshan, D., Thomas, H., & Fiegenbaum, A. (1985). Strategic rime periods and strategic groups research: Concepts and an empirical example. Research paper, University ofIllinois, Urbana-Champaign.
48.
Sudharshan, D., Thomas, H., & Fiegenbaum, A. (1986). Mobius-a procedure for identifying mobility barriers based on dynamic strategic grouping analysis. Working Paper No. 1226, University of Illinois, Urbana-Champaign.
49.
Switzer, L. (1984). The determinants of industrial r&d: A funds flow simultaneous equation approach. The Review of Economics and Statistics, 66(1): 163-168.
50.
Thompson, J. A. (1967). Organizations in action. New York: McGraw-Hill.
