Bundling Among Rivals: A Case of Pharmaceutical Cocktails
Cornell University - Department of Policy Analysis & Management (PAM)
Cornell University - Department of Policy Analysis & Management (PAM); National Bureau of Economic Research (NBER)
Simon Graduate School of Business, University of Rochester
NBER Working Paper No. w16321
We empirically analyze the welfare effects of cross-firm bundling in the pharmaceutical industry. Physicians often treat patients with "cocktail" regimens that combine two or more drugs. Firms cannot price discriminate because each drug is produced by a different firm and a physician creates the bundle in her office from the component drugs. We show that a less competitive equilibrium arises with cocktail products because firms can internalize partially the externality their pricing decisions impose on competitors. The incremental profits from creating a bundle are sometimes as large as the incremental profits from a merger of the same two firms.
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Number of Pages in PDF File: 44working papers series
Date posted: August 30, 2010
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