Dynamic Economies of Scope in the Pharmaceutical Industry

Pharmaceutical industry estimates are used to simulate the innovative performance over time of firms with different capabilities. Competitive advantage due to dynamic scope economies is small during the initial exploration of technological trajectories, but subsequently grows. Firms exploring older trajectories have an advantage in product introductions if scope economies are large. Products based on older trajectories retain a cost advantage. These results suggest that incumbents can have a competitive advantage over technological pioneers because of the existence of complementary assets.