Prizes avoid litigations and lawsuits
Gandjour & Chernyak ‘11, Afschin Gandjour and Nadja Chernyak, Department of Public Health, Faculty of Medicine, Heinrich-Heine University Düsseldorf. (October 2011, Health Policy pg 170-177, accessed online via Science Direct “A new prize system for drug innovation”, https://www.sciencedirect.com/science/article/abs/pii/S0168851011001114, accessed 6-25-2024, AJ)
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.