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THE ECONOMICS OF FTC v. LUNDBECK: WHY DRUG MERGERS MAY NOT RAISE PRICES

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  • Gregory J. Werden

Abstract

In Federal Trade Commission v. Lundbeck, the courts rejected a challenge to a consummated acquisition that had placed under common control the only two drugs for treating a serious heart condition in newborns. Clinical studies showed that the two drugs were equally effective, and the only alternative, surgery, was not a good substitute. Moreover, prices shot up immediately after the acquisition. Yet the courts ruled that the FTC failed to demonstrate substitutability in response to a price difference between the drugs. This article explains why the much-criticized result and rationale of the case plausibly were correct. Analysis of a bespoke model of competition between therapeutic substitute drugs reveals that: (1) competition plausibly results in monopoly pricing, and if not, (2) competition plausibly results in near-monopoly pricing.

Suggested Citation

  • Gregory J. Werden, 2013. "THE ECONOMICS OF FTC v. LUNDBECK: WHY DRUG MERGERS MAY NOT RAISE PRICES," Journal of Competition Law and Economics, Oxford University Press, vol. 9(1), pages 89-95.
    • Handle: RePEc:oup:jcomle:v:9:y:2013:i:1:p:89-95.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhs033
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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