Can R&D Input Influence Market Power? Facts about China's Pharmaceutical Manufacturing Industry

In the pharmaceutical manufacturing industry, R&D activities play an important role in market competition. This study improves upon Klette's method based on the framework of the New Empirical Industrial Organization (NEIO) and incorporates enterprise-level R&D input as a separate input index, to verify the influence of R&D on market power. Adopting data from the China Stock Market & Accounting Research (CSMAR) database and the National Bureau of Statistics of China, the generalized method of moments (GMM) is applied. Our findings demonstrate that there is insufficient market power, as well as diseconomies of scale, in China's pharmaceutical manufacturing industry. Measuring R&D spending separately renders our estimates more accurate.