Development

A more fundamental problem may skip your eyes. Having a few winners get all, with small successful companies being acquired, is, in itself, harmful to the industry in the long run.

The typical example is pharmaceutical company - or other sectors that involve much research and development.

The logic is simple: Developing new drug (or any other product that needs innovation) is a risky business; success does not only depend on an incredible amount of effort - which is nonetheless indispensable - but also a determining contribution of luck. A successful new product is, therefore, often unbelievably expensive, not only because it has to cover the cost of its own development, but also the money spent for another dozen that failed along the pipeline.

(The word dozen was carefully chosen. At the turn of this century, around one in twelve new drugs that entered pre-clinical trial was eventually launched. The chance, unfortunately, goes very much lower by now.)

So, what could big companies do to save the cost of R&D? One common strategy is to cut down the research department of its own, and rely on small private companies to explore new products. If a promising drug comes up from a small firm, either the patent of that drug - or, more commonly, the entire business - would be acquired by the big company. By this tactic the big company could continue to have successful new products but be able to minimize the cost spent on unsuccessful new drugs - which is, unfortunately, now covered by those people who use their own money to start a small business.

PS. One remarkable example recently is Pfizer, which, in February this year, announced that its entire research and development facility at Sandwich would be closed in the coming two years.

Viagra was discovered in this laboratory.