Research on government subsidy strategies for new drug R&D considering spillover effects

This paper studies the pharmaceutical production supply chain system composed of upstream and downstream pharmaceutical enterprises, and explores the impact of government subsidy strategies on the new drug research and development (R&D) decision variables and profits of pharmaceutical enterprises as well as social welfare, when considering both the horizontal spillover effects within the industry and the vertical spillover effects between industries. Comparing and analyzing the impact of these strategies including non-government subsidy strategy, pharmaceutical enterprise innovation input subsidy strategy, pharmaceutical enterprise innovative product subsidy strategy, patient price subsidy strategy, and patient medical insurance subsidy strategy. By establishing a four-stage Cournot duopoly model incorporating spillover effects, the equilibrium solutions are obtained by backward induction, and the impact of spillover effects on decision variables is investigated accordingly. Studies have shown that: (a) Government subsidy strategies can promote pharmaceutical enterprises’ R&D investment and have a positive incentive effect on the pharmaceutical enterprises’ profits and social welfare. (b) The patient medical insurance subsidy strategy is the optimal subsidy strategy, which can generate higher profits for pharmaceutical enterprises and higher social welfare. (c) The horizontal and vertical spillover effects have different effect on decision variables, enterprises’ profits and social welfare under various subsidy strategies.