Revolutionizing pharmaceutical innovation: Unveiling the impact of endogenous knowledge spillover in China

Modern medical technology innovation is a critical safeguard for human health, while a significant number of developing nations are confronted with the challenge of biopharmaceutical technological advancement. To investigate the possible routes of technological advancement, we investigated the impact of the endogenous knowledge spillover effect on firm innovation endeavors. Our research involves a theoretical two-stage R&D game model that is built around the characteristics of pharmaceutical organizations. Theoretical studies elucidated the impact as well as the probable mechanism of the spillover effect. To verify the theoretical study, we conducted econometric analysis using data from the pharmaceutical sector of Chinese enterprise listed on the A-share market. The study's findings indicate that endogenous knowledge spillovers impede organizations' innovation endeavors. This phenomenon may be attributed to the existence of the patent race paradigm and high concentration of enterprises' R&D endeavors in specific areas. Additional examination of heterogeneity demonstrates that private firms, small and medium-sized enterprises (SMEs), and non-high-tech enterprises experience a larger adverse impact from the spillover effect. Hence, we suggest implementing "loser's subsidies", reallocating R&D resources, and making modifications to competition policies as measures to enhance the innovation performance of biopharmaceutical markets. These policies will facilitate the technical advancement of medicines in developing nations.