Bundling Among Rivals: A Case of Pharmaceutical Cocktails

44 Pages Posted: 30 Aug 2010

See all articles by Claudio Lucarelli

Claudio Lucarelli

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

Sean Nicholson

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

Minjae Song

Bates White Economic Consulting

Date Written: August 2010

Abstract

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.

Suggested Citation

Lucarelli, Claudio and Nicholson, Sean and Song, Minjae, Bundling Among Rivals: A Case of Pharmaceutical Cocktails (August 2010). NBER Working Paper No. w16321, Available at SSRN: https://ssrn.com/abstract=1667352

Claudio Lucarelli (Contact Author)

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

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States

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

Minjae Song

Bates White Economic Consulting ( email )

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

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