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The Relative Importance of Actual and Potential Competition: Empirical Evidence From the Pharmaceuticals Market

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  • Mats A. Bergman
  • Niklas Rudholm

Abstract

We study actual and potential competition and other factors that determine price paths of brand‐name drugs in the Swedish pharmaceuticals market. The results indicate that the price of the incumbent product is lowered by potential competition, entry of (additional) generics, and the introduction of a so‐called reference‐price system. We also identify a ‘ratchet’ effect, through which price regulation makes entry‐deterring limit‐pricing credible.

Suggested Citation

  • Mats A. Bergman & Niklas Rudholm, 2003. "The Relative Importance of Actual and Potential Competition: Empirical Evidence From the Pharmaceuticals Market," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 455-467, December.
    • Handle: RePEc:bla:jindec:v:51:y:2003:i:4:p:455-467
    DOI: 10.1111/j.0022-1821.2003.00210.x
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    References listed on IDEAS

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    1. Thomas Aronsson & Mats Bergman & Niklas Rudholm, 2001. "The Impact of Generic Drug Competition on Brand Name Market Shares – Evidence from Micro Data," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 19(4), pages 423-433, December.
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    3. Nikas Rudholm, 2001. "Entry and the Number of Firms in the Swedish Pharmaceuticals Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 19(3), pages 351-364, November.
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    8. Morrison, Steven A & Winston, Clifford, 1987. "Empirical Implications and Tests of the Contestability Hypothesis," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 53-66, April.
    9. Karel Cool & Lars‐Hendrik Röller & Benoit Leleux, 1999. "The relative impact of actual and potential rivalry on firm profitability in the pharmaceutical industry," Strategic Management Journal, Wiley Blackwell, vol. 20(1), pages 1-14, January.
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