Bundling Among Rivals: A Case of Pharmaceutical Cocktails

51 Pages Posted: 24 Aug 2010 Last revised: 27 Nov 2012

See all articles by Minjae Song

Minjae Song

Bates White Economic Consulting

Sean Nicholson

Cornell University - Department of Policy Analysis & Management (PAM); National Bureau of Economic Research (NBER)

Claudio Lucarelli

Cornell University - Department of Policy Analysis & Management (PAM)

Date Written: November 26, 2012

Abstract

We empirically analyze the welfare effects of inter-firm bundling in the pharmaceutical industry, also known as "cocktail" regimens. Firms often cannot price discriminate because each drug is produced by a different firm and a physician creates a bundle in her office from component drugs. We show that under this linear pricing a new cocktail regimen tends to make the market less competitive by increasing the prices of all regimens that use the same component drugs. We also show that a merger between the firms that have a cocktail regimen in common is less anticompetitive than the standard merger. This is because the cocktail regimen is a complement to the merging firms' other regimens that use the same drugs.

Keywords: inter-firm bundling, complementarity, oligopolistic competition

Suggested Citation

Song, Minjae and Nicholson, Sean and Lucarelli, Claudio, Bundling Among Rivals: A Case of Pharmaceutical Cocktails (November 26, 2012). Simon School Working Paper No. FR 10-28, Available at SSRN: https://ssrn.com/abstract=1664767 or http://dx.doi.org/10.2139/ssrn.1664767

Minjae Song (Contact Author)

Bates White Economic Consulting ( email )

1300 I Street NW
Washington, DC DC 20005
United States
2027471404 (Phone)

Sean Nicholson

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States
607-254-6498 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Claudio Lucarelli

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States

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