Dynamics of firm size in healthcare industry

Abstract

Healthcare is one of the world’s fastest growing industries consisting of broad services offered by various hospitals, physicians, nursing homes, diagnostic laboratories, pharmacies and supported by drugs, pharmaceuticals, chemicals, medical equipment, manufacturers and suppliers. The industry is highly fragmented, comprising of various ancillary sectors namely medical equipment and supplies, pharmaceutical, healthcare services, biotechnology, and alternative medicines. The present study focuses on the pharmaceutical and biotechnology segments of the healthcare industry, and presents a stochastic analysis of the evolution over time of firm size. A dynamic model is proposed that attempts to predict the evolutionary process of firm size distribution based on industry and product characteristics. A validation exercise, applying the model to pharmaceutical and the biotechnology industries finds that the predictions from the model are very close to the actual trajectories of firm size distributions within these industries at the global level. The results show interestingly, that the drivers of firm size dynamics are industry level characteristics that can be estimated from historical data with some accuracy. Specifically, it is found that firm size distributions are approaching a long-run equilibrium at a faster rate in the case of the pharmaceutical industry and that the dispersion of the distributions are shrinking over time above all for the biotechnology industry.