IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/14035.html
   My bibliography  Save this paper

Market definition in the pharmaceutical industry: a case of drugs hopping antitrust markets?

Author

Listed:
  • Castanheira, Micael
  • Ornaghi, Carmine
  • Siotis, Georges

Abstract

Delineating the boundaries of the relevant market plays a central role in the conduct of competition policy. In this paper, we focus on market definition in the pharmaceutical industry, where the introduction of generics represents a significant competitive shock for the molecule experiencing Loss of Exclusivity. We show that generic entry generates market-wide effects that shift the boundaries of the relevant antitrust market, but in unexpected ways. In a market where non-price competition is prevalent, entry may lead to a split of the (initial) relevant market. Hence, and paradoxically, entry may soften competitive constraints. We also highlight the importance of properly accounting for non-price instruments: ignoring them can easily lead to a flawed definition of the relevant antitrust market. We obtain these results by econometrically estimating time-varying substitution patterns in the pharmaceutical industry.

Suggested Citation

  • Castanheira, Micael & Ornaghi, Carmine & Siotis, Georges, 2019. "Market definition in the pharmaceutical industry: a case of drugs hopping antitrust markets?," CEPR Discussion Papers 14035, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:14035
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=14035
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Anupam B. Jena & John E. Calfee & Edward C. Mansley & Tomas J. Philipson, 2009. ""Me-Too" Innovation in Pharmaceutical Markets," NBER Chapters, in: Frontiers in Health Policy Research, volume 12, National Bureau of Economic Research, Inc.
    2. de Frutos, Maria-Angeles & Ornaghi, Carmine & Siotis, Georges, 2013. "Competition in the pharmaceutical industry: How do quality differences shape advertising strategies?," Journal of Health Economics, Elsevier, vol. 32(1), pages 268-285.
    3. Panle Jia & Pinelopi K. Goldberg & Shubham Chaudhuri, 2006. "Estimating the Effects of Global Patent Protection in Pharmaceuticals: A Case Study of Quinolones in India," American Economic Review, American Economic Association, vol. 96(5), pages 1477-1514, December.
    4. Ernst R. Berndt, 2002. "Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 45-66, Fall.
    5. Castanheira, Micael & Ornaghi, Carmine & Siotis, Georges, 2019. "The unexpected consequences of generic entry," Journal of Health Economics, Elsevier, vol. 68(C).
    6. Lipatov, Vilen & Neven, Damien J & Siotis, Georges, 2019. "Dominance and the pre-emption of competition following the Servier and Paroxetine GSK judgments," CEPR Discussion Papers 14019, C.E.P.R. Discussion Papers.
    7. Castanheira, Micael & de Frutos, Maria-Angeles & Ornaghi, Carmine & Siotis, Georges, 2017. "The Unexpected Consequences of Asymmetric Competition. An Application to Big Pharma," CEPR Discussion Papers 11813, C.E.P.R. Discussion Papers.
    8. Rizzo, John A, 1999. "Advertising and Competition in the Ethical Pharmaceutical Industry: The Case of Antihypertensive Drugs," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 89-116, April.
    9. Ivaldi Marc & Lőrincz Szabolcs, 2011. "Implementing Relevant Market Tests in Antitrust Policy: Application to Computer Servers," Review of Law & Economics, De Gruyter, vol. 7(1), pages 29-71, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Castanheira, Micael & Ornaghi, Carmine & Siotis, Georges, 2019. "The unexpected consequences of generic entry," Journal of Health Economics, Elsevier, vol. 68(C).
    2. Georges Siotis & Carmine Ornaghi & Micael Castanheira De Moura, 2020. "Market Definition and Competition Policy Enforcement in the Pharmaceutical Industry," Working Papers ECARES 2020-49, ULB -- Universite Libre de Bruxelles.
    3. Castanheira, Micael & de Frutos, Maria-Angeles & Ornaghi, Carmine & Siotis, Georges, 2017. "The Unexpected Consequences of Asymmetric Competition. An Application to Big Pharma," CEPR Discussion Papers 11813, C.E.P.R. Discussion Papers.
    4. Higgins, Matthew J. & Yan, Xin & Chatterjee, Chirantan, 2021. "Unpacking the effects of adverse regulatory events: Evidence from pharmaceutical relabeling," Research Policy, Elsevier, vol. 50(1).
    5. Liu, Ya-Ming & Yang, Yea-Huei Kao & Hsieh, Chee-Ruey, 2012. "Regulation and competition in the Taiwanese pharmaceutical market under national health insurance," Journal of Health Economics, Elsevier, vol. 31(3), pages 471-483.
    6. John Cawley & John A. Rizzo, 2005. "The Competitive Effects of Drug Withdrawals," NBER Working Papers 11223, National Bureau of Economic Research, Inc.
    7. Venkatesh Shankar & Pablo Azar & Matthew Fuller, 2008. "—: A Multicategory Brand Equity Model and Its Application at Allstate," Marketing Science, INFORMS, vol. 27(4), pages 567-584, 07-08.
    8. Dhaval M. Dave, 2013. "Effects of Pharmaceutical Promotion: A Review and Assessment," NBER Working Papers 18830, National Bureau of Economic Research, Inc.
    9. Hostenkamp, Gisela, 2013. "Do follow-on therapeutic substitutes induce price competition between hospital medicines? Evidence from the Danish hospital sector," Health Policy, Elsevier, vol. 111(1), pages 68-77.
    10. Jordi Perdiguero & Joan Ramon Borrell, 2019. "Driving competition in local markets with near-perfect substitutes: an application on the Spanish retail gasoline market," Empirical Economics, Springer, vol. 57(1), pages 345-364, July.
    11. Bond, Eric W. & Saggi, Kamal, 2014. "Compulsory licensing, price controls, and access to patented foreign products," Journal of Development Economics, Elsevier, vol. 109(C), pages 217-228.
    12. Tomaso Duso & Annika Herr & Moritz Suppliet, 2014. "The Welfare Impact Of Parallel Imports: A Structural Approach Applied To The German Market For Oral Anti‐Diabetics," Health Economics, John Wiley & Sons, Ltd., vol. 23(9), pages 1036-1057, September.
    13. Hazel V. J. Moir, 2016. "Exploring Evergreening: Insights from Two Medicines," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 49(4), pages 413-431, December.
    14. Dewatripont, Mathias & Ginsburgh, Victor & Goldman, Michel & Legros, Patrick & Natali, Ilaria, 2020. "Prescription Opioids and Economic Hardship in France," CEPR Discussion Papers 14403, C.E.P.R. Discussion Papers.
    15. Kamal Saggi & Difei Geng, 2014. "The nature of innovative activity and the protection of intellectual property: a post TRIPS perspective from Asia," Vanderbilt University Department of Economics Working Papers 14-00003, Vanderbilt University Department of Economics.
    16. Vincenzo Atella & Jay Bhattacharya & Lorenzo Carbonari, 2008. "Pharmaceutical Industry, Drug Quality and Regulation: Evidence from US and Italy," NBER Working Papers 14567, National Bureau of Economic Research, Inc.
    17. Ryo Sakamoto & Kyle Stiegert, 2018. "Comparing competitive toughness to benchmark outcomes in retail oligopoly pricing," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 44-60, December.
    18. Luiz Andrade & Catherine Sermet & Sylvain Pichetti, 2016. "Entry time effects and follow-on drug competition," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(1), pages 45-60, January.
    19. Madan Dhanora & Ruchi Sharma & Walter G. Park, 2021. "Technological Innovations and Market Power: A Study of Indian Pharmaceutical Industry," Millennial Asia, , vol. 12(1), pages 5-34, April.
    20. Patricia M. Danzon & Eric L. Keuffel, 2014. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Antitrust; competition policy; Market Definition; Pharmaceutical industry;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:14035. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://www.cepr.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.