Higher Prices from Entry: Pricing of Brand-Name Drugs

U of California, Berkeley, Competition Policy Working Paper No. CPC99-03

39 Pages Posted: 26 Feb 2004

See all articles by Jeffrey M. Perloff

Jeffrey M. Perloff

University of California, Berkeley - Department of Agricultural & Resource Economics

Valerie Y. Suslow

Johns Hopkins University - Carey Business School

Paul J. Seguin

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: August 1995

Abstract

When a new firm enters a market and starts selling a spatially-differentiated product, the prices of existing products may rise due to a better match between consumers and products. Entry may have three unusual effects. First, the new price is above the monopoly price if the two firms collude and may be above the monopoly price even if the firms play Bertrand. Second, the Bertrand and collusive price may be identical. Third, prices, combined profits, and consumer surplus may all rise with entry. Consistent with our theory, the real prices of some anti-ulcer drugs rose as new products entered the market.

Keywords: Bertrand, monopoly price, product marketing

JEL Classification: L1

Suggested Citation

Perloff, Jeffrey M. and Suslow, Valerie Y. and Seguin, Paul J., Higher Prices from Entry: Pricing of Brand-Name Drugs (August 1995). U of California, Berkeley, Competition Policy Working Paper No. CPC99-03. Available at SSRN: https://ssrn.com/abstract=506224 or http://dx.doi.org/10.2139/ssrn.506224

Jeffrey M. Perloff (Contact Author)

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

207 Giannini Hall
Berkeley, CA 94720
United States
510-642-9574 (Phone)
510-643-8911 (Fax)

HOME PAGE: http://are.berkeley.edu/~perloff

Valerie Y. Suslow

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Paul J. Seguin

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
(612) 626-7861 (Phone)

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