Dominance and the Pre-Emption of Competition Following the Servier and Paroxetine GSK Judgments

33 Pages Posted: 7 Oct 2019

See all articles by Vilen Lipatov

Vilen Lipatov

ECA Economics GmbH

Damien J Neven

Graduate Institute of International and Development Studies (IHEID)

Georges Siotis

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

Date Written: September 2019

Abstract

This paper discusses, from economic and enforcement perspectives, unilateral conduct aimed at foreclosing the entry of generics. We assume, in line with empirical evidence, that before the entry of generics, competition takes place among originators mostly through non price instruments and in particular, promotion. The entry of generics for one molecule introduces head to head price competition for that molecule and changes competitive interactions among the originators that remain patent protected. First, we develop a model in which competition takes place through price and promotion and analyse the consequence of unilateral conduct preventing the entry of generics, thus prolonging the status quo. We find that that the extent to which this conduct reduces consumer welfare (if at all) depends on whether promotion enhances the utility of users and whether promotion also involves business stealing. In order to provide some guidance for enforcement, we characterise the competitive outcome that prevails before entry in terms of consumer welfare. We find that unlike what happens with price competition, common indicators of performance such as the number of firms, the level of concentration (for a given number of firms) and the intensity of rivalry might be negatively associated with consumer welfare. As a consequence, the foreclosure of entrants might lead to welfare losses even when the status quo involves intense non-price competition and low concentration. Finally, we consider how unilateral conduct towards generic entry can be dealt with in the current enforcement framework. In the Servier and Paroxetine cases, the foreclosure of generics has been framed as an abuse of a dominant position held by the originator before entry, in spite of evidence of non-price competition. We show that it would be preferable to frame the conduct as an abuse of the dominant position that the originator holds in the molecule market as a consequence of its patent. In such a framework, the dominant position is instrumental in making exclusion feasible.

Keywords: Abuse of dominance, foreclosure, Non-price competition, Pharmaceutical industry

JEL Classification: I11, K21, L13

Suggested Citation

Lipatov, Vilen and Neven, Damien J and Siotis, Georges, Dominance and the Pre-Emption of Competition Following the Servier and Paroxetine GSK Judgments (September 2019). CEPR Discussion Paper No. DP14019, Available at SSRN: https://ssrn.com/abstract=3464548

Vilen Lipatov (Contact Author)

ECA Economics GmbH ( email )

Avenue Louise 500
Brussels
Belgium

Damien J Neven

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211
Switzerland
+41229084578 (Phone)

Georges Siotis

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

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9312 (Phone)
+34 91 624 9875 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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