Multimarket Contact in Pharmaceutical Markets

38 Pages Posted: 26 Jul 2007

See all articles by Francisco Javier Coronado

Francisco Javier Coronado

Universitat Pompeu Fabra

Sergi Jimenez-Martin

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Pedro L. Marin

Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: April 2007

Abstract

We analyze the effect of multimarket contact on the pricing behavior of pharmaceutical firms controlling for different levels of regulatory constraints using the IMS MIDAS database for the industry. Theoretically, under product differentiation, firms may find it profitable to allocate their market power among markets where they are operating, specifically from more collusive to more competitive ones. We present evidence for nine OECD countries suggesting the existence of a multimarket effect for more market friendly countries (U.S. and Canada) and less regulated ones (U.K., Germany, Netherlands), while the results are more unstable for highly regulated countries with some countries being consistent with the theory (France) while others contradicting it (Japan, Italy and Spain). A key result indicates that in the latter countries, price constraints are so intense, that there is little room for allocating market power. Thus equilibrium prices are expected in general to be lower in regulated countries.

Keywords: Pharmaceutical prices, Multimarket Contact, Regulation

JEL Classification: L11, L13, L65, I18

Suggested Citation

Coronado, Francisco Javier and Jimenez-Martin, Sergi and Marin, Pedro L., Multimarket Contact in Pharmaceutical Markets (April 2007). Available at SSRN: https://ssrn.com/abstract=1003134 or http://dx.doi.org/10.2139/ssrn.1003134

Francisco Javier Coronado

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

Sergi Jimenez-Martin (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34) 93 542 16 67 (Phone)
(34) 93 542 17 46 (Fax)

Pedro L. Marin

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9646 (Phone)
+34 91 624 9875 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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