Overall, patents reduce product quality and breakthrough innovations.

4 Conclusions In this work, we have studied how different configurations of the patent system affect innovation and competition in pharmaceuticals, indeed, one of the industries where IPR seem to matter most (Cohen et al., 2000; Levin et al., 1987). To address such research question, we have developed an evolutionary, agent-based model tailored on the pharmaceutical industry. Firms in the model compete and innovate in different therapeutic areas according to routinized search rules, while a process of market selection determines their demand, market shares and profitability. The patent system has a dual role: on the one hand, it protects innovations by preventing firms to move into areas of the product landscape nearby the newly discovered drugs, while, it might favour information disclosure and easier imitation after the expiration of patent rights. In a baseline scenario, the model yields results in line with observational data and replicates a set of robustly established stylized facts of the pharmaceutical industry, including a few micro distributional properties and an increasing industry size and concentration (cf. Section 3.2). We then run policy experiments studying different degrees of tightness of IPR systems in terms of patent breadth and length. Our results suggest that larger extent and duration of patent rights have negative consequences not only on competition, but also on innovation outcomes. In addition to rising prices and market concentration, a stronger patent regime entails lower product variety and quality, as well as, interestingly, less breakthrough discoveries. We also implemented different policy scenarios varying the strength of positive R&D incentives provided by patents and the effectiveness of information disclosure. Patents exert positive effects on innovation only when combining a very large (arguably unrealistic) response of R&D investment under a low patent breadth. Introducing stronger information disclosure effects only alter the direction of the innovative process, fostering imitation and the development of generic drugs. Our work can be extended in different ways. First, we mean to explicitly model the role of public funding of basic research and the spillovers to private firms. Second, it is important to model at greater detail the different phases which lead to drug discovery and commercialization. Third, as already mentioned, we intend to explore the evolutionary implications of ecologies of firms characterized by different propensities to innovate and imitate. Finally, one can study which policy tools and, more generally, innovation system (e.g., innovation prizes, public drug discovery, etc.) can boost innovation and the discovery of new therapeutic areas at the lower cost for the public (see e.g. the policy proposals in Cimoli et al., 2014).