Market Definition in the Pharmaceutical Industry: A Case of Drugs Hopping Antitrust Markets?

35 Pages Posted: 7 Oct 2019

See all articles by Micael Castanheira

Micael Castanheira

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR)

Carmine Ornaghi

University of Southampton

Georges Siotis

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

Date Written: October 2019

Abstract

Delineating the boundaries of the relevant market plays a central role in the conduct of competition policy. In this paper, we focus on market definition in the pharmaceutical industry, where the introduction of generics represents a significant competitive shock for the molecule experiencing Loss of Exclusivity. We show that generic entry generates market-wide effects that shift the boundaries of the relevant antitrust market, but in unexpected ways. In a market where non-price competition is prevalent, entry may lead to a split of the (initial) relevant market. Hence, and paradoxically, entry may soften competitive constraints. We also highlight the importance of properly accounting for non-price instruments: ignoring them can easily lead to a flawed definition of the relevant antitrust market. We obtain these results by econometrically estimating time-varying substitution patterns in the pharmaceutical industry.

Keywords: Antitrust, competition policy, Market Definition, Pharmaceutical industry

JEL Classification: D22, I11, L22

Suggested Citation

Castanheira, Micael and Ornaghi, Carmine and Siotis, Georges, Market Definition in the Pharmaceutical Industry: A Case of Drugs Hopping Antitrust Markets? (October 2019). CEPR Discussion Paper No. DP14035, Available at SSRN: https://ssrn.com/abstract=3465747

Micael Castanheira (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

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Brussels, B-1050
Belgium
+32 2 650 4467 (Phone)
+32 2 650 3369 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Carmine Ornaghi

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, SO17 1LP
United Kingdom

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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