First mover industry advantage as a prerequisite for new industry development A comparative case study of the development of the biopharmaceutical industry in the USA and the EU
MetadataShow full item record
This study expands on the work of Hausmann et al. (2007) on the product space of nations to come to a model for first mover industry advantage. For this model, insights from the varieties of capitalism theory (Hall & Soskice, 2001), comparative advantage theory (Davis, 1995) and first mover advantage theory (Wernerfelt, 1984) were combined in order to derive two key factors of endogenous industry growth, namely a learning advantage and a financing advantage. This model was then applied to the recently emerged industry of biopharmacy in the USA and the EU. For this case study, information from several different industry reports was gathered and combined into a narrative on the development of the industry in the USA and the EU since 1980. In this narrative, it was found that the USA had an early start in the development of biopharmaceutical products, owing to the Bayh-Dole act formulated in 1980 (AUTM, 2013), while corresponding European laws were only implemented 10 years later. This early advantage was maintained up to the current situation, where the USA has a firm lead in the biopharmaceutical industry. Based on the conceptual model derived earlier, an explanation for this phenomenon was found: in the early period of the industry, developing new biopharmaceutical products carried relatively little risk, allowing venture capitalists to gain experience in guiding new ventures to a successful exit. When the European nations implemented their versions of the Bayh-Dole act, these low-risk products had already been developed, meaning that the EU based venture capitalists did not have the same opportunity to gain experience that the USA based firms had been given. This difference in experience has led to the USA based ventures continuing to have a higher success rate than their EU based counterparts, giving the USA a long-term competitive advantage in the industry. In general, the coevolution of endogenous industry effects such as the knowledge accumulation in firms and venture capitalists are an integral part of the development of an industry and should be taken into account by policy makers attempting to stimulate industry growth.