Governments do way more for innovation by being a big, demanding customer than they do by just handing out research checks.
March 30, 2026
Original Paper
Buyer Power and Corporate Innovation
SSRN · 6487435
The Takeaway
Using data from China’s centralized drug procurement, researchers found that the pressure of meeting a government buyer's needs stimulated pharmaceutical R&D more effectively than traditional handouts. It suggests that market 'buyer power' is a more potent tool for progress than supply-side subsidies.
From the abstract
Moving beyond supply-side subsidies, this study investigates government procurement’s role in innovation using China’s National Centralized Volume-Based Procurement (VBP) policy. Employing a difference-in-differences approach, we find VBP significantly stimulates pharmaceutical R&D investment, fostering high-quality innovation more effectively than traditional instruments. The impact is strongest for winning bidders, non-state-owned enterprises, and firms heavily dependent on generic drugs. Thes