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

See all articles by Farasat A. S. Bokhari

Farasat A. S. Bokhari

University of East Anglia (UEA) - School of Economic and Social Studies; University of East Anglia (UEA) - Centre for Competition Policy

Weijie Yan

Economic and Social Research Institute, Ireland

Date Written: 2020

Abstract

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

Suggested Citation

Bokhari, Farasat A. S. and Yan, Weijie, Product Line Extensions Under the Threat of Entry: Evidence from the UK Pharmaceuticals Market (2020). Available at SSRN: https://ssrn.com/abstract=3675109 or http://dx.doi.org/10.2139/ssrn.3675109

Farasat A. S. Bokhari

University of East Anglia (UEA) - School of Economic and Social Studies ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Weijie Yan (Contact Author)

Economic and Social Research Institute, Ireland ( email )

Whitaker Square
Sir John Rogerson's Quay
Dublin 2
United States

HOME PAGE: http://https://www.esri.ie/people/weijie-yan

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