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Preempting the Entry of Near Perfect Substitutes

Author

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  • Vilen Lipatov
  • Damien Neven
  • Georges Siotis

Abstract

When firms compete on price and quality-enhancing promotion in a market for differentiated products, entry of a nearly perfect substitute to one of such products, for example, a generic version of a pharmaceutical drug, intensifies price competition but softens quality competition. We show that consumers are likely to gain from entry when quality is relatively unimportant for them, when business stealing generated by promotion is substantial, and when products are poor substitutes. We also show that entry may be more attractive for consumers in less concentrated markets, as a smaller number of firms and asymmetric market shares may be associated with higher quality.

Suggested Citation

  • Vilen Lipatov & Damien Neven & Georges Siotis, 2021. "Preempting the Entry of Near Perfect Substitutes," Journal of Competition Law and Economics, Oxford University Press, vol. 17(1), pages 194-210.
    • Handle: RePEc:oup:jcomle:v:17:y:2021:i:1:p:194-210.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhaa023
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    Cited by:

    1. Siotis, Georges & Ornaghi, Carmine & Castanheira, Micael, 2019. "Market Definition and Competition Policy Enforcement in the Pharmaceutical Industry," CEPR Discussion Papers 14035, C.E.P.R. Discussion Papers.
    2. Georges Siotis & Carmine Ornaghi & Micael Castanheira, 2023. "Evolving market boundaries and competition policy enforcement in the pharmaceutical industry," European Journal of Law and Economics, Springer, vol. 55(2), pages 313-348, April.

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