Research On The Entry Barriers And Industrial Dynamics Of Chinese Pharmaceutical Industry

The pharmaceutical industry includes pharmaceutical research and development,production,sales and other related economic activities around the drugs.On the one hand it is economical,which brings huge economic benefits through market competition for pharmaceutical companies,on the other hand,due to related to people's health and social stability,drugs have a broad social impact and make every government pay much attention to.With the market-oriented reform,industrial reform and medical reform process step by step,the Chinese chemical pharmaceutical industry realized transformation from government monopoly to the marketization.However,because its social impact is so significant,the government did not relax control or cancel the entry threshold on the pharmaceutical industry.Meanwhile,Chinese pharmaceutical industry is in a stage of rapid development,and China has also become a major producer and exporter of drugs.But behind these bright achievement,Chinese pharmaceutical industry still has some problems to be improved,such as small scale of production,low market concentration,scattered market structure and so on.In the developed countries such as the world,Europe and the United States,because of the obvious advantages of scale economy,the pharmaceutical industry has a high concentration of market structure,which is in contrast with the status of ours.In recent years,with the gradual implementation of health care reform,the market structure of Chinese pharmaceutical industry has been improved,but the problem has not been completely resolved.Based on mastering the regulation and entry barriers on Chinese chemical raw materials industry,this paper selects the data from 1999 to 2007 and makes empirical research on productivity level and exit risk from the perspective of new entrants when new companies entered the industry.In addition,further discussion and analysis about the whole industry's situation of enter and exit,industrial productivity and market concentration has been made.The empirical results show that,in order to overcome the adverse effects of entry barriers and successfully enter the market,new entrants generally have higher productivity than the incumbent firms.These barriers to entry are mainly from economic barriers like economies of scale,absolute cost advantage,product differentiation and non-economic barriers,which contain government regulation,rent-seeking behavior and the relationship network.In view of the current situation of Chinese chemical raw materials industry,the scale of economic barriers is not high,and the complex government regulation has not built high institutional barriers to entry.These entry barriers worked as a protection for the incumbent,and as a result of the weakening of "protective effect",the chemical raw materials manufacturing industry does not appear the phenomenon of new enterprises with higher productivity facing higher exit risk,which is widespread in manufacturing industry.New entrants having a higher productivity tend to operate in the initial production of smaller scale,and existing enterprises with capability to expand the scale of production are facing a relatively higher risk of exit.Both of the two situations mentioned above lead to Chinese chemical raw materials production enterprises' small scale and low market concentration.To conclude,Chinese government should further strengthen entry barriers on pharmaceutical industry especially the chemical raw materials industry firstly.Then it should also relax exit barriers and improve the market regulation mechanism.These will not be only beneficial to improve the production scale of enterprises,but also contribute to the market concentration and competition ability of pharmaceutical industry.