Product Line Extensions Under the Threat of Entry: Evidence from the UK Pharmaceuticals Market
47 Pages Posted: 1 Oct 2020 Last revised: 28 Jul 2021
Date Written: 2020
Do firms increase product lines to deter entry and if so, when is this strategy successful? We use data from UK pharmaceuticals to examine how incumbents respond to change in the threat of entry. Consistent with entry deterrence motive, we find that originators slow their product launch rate when they find out that entry is very likely, particularly in medium-sized markets. We also find that originators can successfully deter entry via product proliferation in medium-size markets, but product hopping is a more successful strategy in larger markets. Our findings have implications for competition policy and goes beyond pharmaceutical industry.
Keywords: product proliferation, product hopping, entry deterrence, pharmaceuticals, hazard models
JEL Classification: L40, L12, L41, I11, L79
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