Prizes don’t create litigation costs.
Gandjour 11, *MD, PhD, Professor of Health Management @ the Frankfurt School. **PhD, Assistant Professor in the Department of Cognitive Sciences at UC – Irvine. (*Afschin and **Nadja Chernyak, October 2011, "A new prize system for drug innovation," Health Policy, Volume 102, Issues 2–3, https://www.sciencedirect.com/science/article/pii/S0168851011001114)
In addition, as the reward system does not provide for licensing copycat drugs, it prevents welfare losses from free riding and excessive market entry. This is in line with the reasoning of [36], who argued that if an entrant causes incumbent firms to reduce output, entry is more desirable to the entrant than to society. Further, there is no need to subsidise start-up and production costs of generic manufacturers. Litigation costs because of patent infringement lawsuits against generic manufacturers also vanish. Finally, firms currently allocate substantial resources to marketing8 in order to protect their profits. Restricting excessive entry and competition for market share could change the proportion between R&D and marketing expenditures.