Evergreening and operational risk under price competition

“Evergreening” is a strategy wherein an innovative pharmaceutical firm introduces an upgrade of its current product when the patent on this product expires. The upgrade is introduced with a new patent and is designed to counter competition from generic manufacturers that seek to imitate the firm's existing product. However, this process is fraught with uncertainty because the upgrade is subject to stringent guidelines and faces approval risk. Thus, an incumbent firm has to make an upfront production capacity investment without clarity on whether the upgrade will reach the market. This uncertainty may also affect the capacity investment of a competing manufacturer who introduces a generic version of the incumbent's existing product but whose market demand depends on the success or failure of the upgrade. We analyze a game where capacity investment occurs before uncertainty resolution and firms compete on prices thereafter. Capacity considerations that arise due to demand uncertainty introduce new factors into the evergreening decision. Equilibrium analysis reveals that the upgrade's estimated approval probability needs to exceed a threshold for the incumbent to invest in evergreening. This threshold for evergreening increases as the intensity of competition in the generic market increases. If evergreening is optimal, the incumbent's capacity investment is either decreasing or nonmonotonic with respect to low end market competition depending on whether the level of product improvement in the upgrade is low or high. If the entrant faces a capacity constraint, then the probability threshold for evergreening is higher than the case where the entrant is not capacity constrained. Finally, by incorporating the risk‐return trade‐off that the incumbent faces in terms of the level of product improvement versus the upgrade success probability, we can characterize policy for a regulator. We show that the introduction of capacity considerations may maximize market coverage and/or social surplus at incremental levels of product improvement in the upgrade. This is contrary to the prevalent view of regulators who seek to curtail evergreening involving incremental product improvement. © 2016 Wiley Periodicals, Inc. Naval Research Logistics 63: 71–89, 2016     

Country survey: Angola

This paper is a survey of Angola’s defence sector and policy from 1992, the year the civil war ended, to 2012. Angola achieved its independence upon the Popular Movement for the Liberation of Angola (MPLA) defeating National Union for the Total Independence of Angola. Since then, fuelled by its rich natural resources, the country has grown steadily. The MPLA military forces were a central factor behind independence and maintain their central role to this day. Moreover, Angola’s support for African peace with monitoring military missions is a clear indication that the country aims to intervene in African security and military issues, with its military capabilities funded by oil revenues.     

Military Spending and Growth: The Role of Institutions

Recent literature on whether military spending affects economic growth argues that the relationship may be a conditional one. We add to this literature by considering the role that ‘good institutions’ play in the effect of military spending on growth. Using data from a sample of over 100 countries from 1988 to 2010, our analysis suggests that the effect of military spending on growth is generally negative or zero at best, and this effect is mitigated in the presence of good economic and political institutions.     

All or nothing? The EU Global Strategy and defence policy after the Brexit

The public expects European governments and the European Union (EU) to deal with the security challenges in and around Europe. So does the US, whose strategic focus has pivoted to the Pacific. Washington, DC has made it clear that it will not, and cannot, solve all of Europe’s problems. The call for ‘strategic autonomy’ in the new EU Global Strategy of June 2016 does not come a moment too soon. But should the aim be EU strategic autonomy, without the UK, or can the aspiration still be European strategic autonomy, with the UK? Can nothing be achieved unless all are fully involved? Or are intermediate solutions possible? How EU Member States and the UK answer these questions will determine which degree of strategic autonomy the EU can achieve. With which degree of British involvement. And whether the UK itself will be left with any measure of strategic autonomy.     

Clustering in defence-related procurement: the case of a Belgian naval construction cluster

ABSTRACT

This paper examines the importance of closer co-operation in defence-related procurement. Led by the decision that Belgium will lead the procurement of 12 Mine CounterMeasures Vessels (MCMV), the case of a potential Belgian naval construction cluster is discussed. The feasibility of a potential cluster is investigated by looking at key elements of a successful naval construction cluster, the Dutch naval construction cluster, and comparing those key elements to the current Belgian situation. Forming a sustainable Belgian naval construction cluster will be difficult. Most of the procurement process of the MCMVs is set on a European tender. In the long run, due to the absence of both a launching customer and leader firms, no party is able to carry the cluster with investments and knowledge spill-overs. In order to keep public support for large defence-related investments, clustering around the MCMV integration system and proactive cluster support is recommended.     

The Czech defence and security industry: taking the pulse to an ailing man

ABSTRACT

The paper summarises the evolution of the iron triangle of the mutual relationships amongst the ministry of defence, defence industry, and the political elite in the post-communist Czech Republic in 1990-2020. The essay stresses the oddness of this relationship. On the one hand, the government is bound by a partnership to the Defence and Security Industry Association of the Czech Republic (DSIA), a lobbying group of more than 100 organisations that conduct business in defence and security sector in Czechia. Yet, since its creation in 2000, this assemblage of industries within DSIA's market position is falling, in fact. Neither political parties in power, nor the governments have been able to support national defence industry through the small military. Just a few DSIA national members are able to compete internationally with their cutting-edge products. Others have evolved into middlemen trading intime-expired Czechoslovak equipment retired from the Czech Armed Forces.     

Defence industry in Iran – between needs and real capabilities

ABSTRACT

The paper’s goal is to analyses the potential of the Iranian defence industry, including both research-and-development and production capabilities. It is argued that, despite official statements about the great power and sophistication of the Iranian defence industry, in reality its capabilities are very limited and cannot meet the operational needs of the Iranian armed forces. At the same time, it is argued that many official releases, which are abundantly available in the Iranian press and often unthinkingly repeated by the Western media, do not present the real and value of military products, but are rather a tool for deception and propaganda.