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Market Definition and Competition Policy Enforcement in the Pharmaceutical Industry

Author

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  • Georges Siotis
  • Carmine Ornaghi
  • Micael Castanheira De Moura

Abstract

We focus on market definition in the pharmaceutical industry, where the introduction of generics in different markets provide a sequence of quasi natural experiments involving a significant competitive shock for the molecule experiencing Loss of Exclusivity. We show that generic entry alters competitive constraints and generates market-wide effects. Paradoxically, entry may soften competitive pressure for some originators. We obtain these results by econometrically estimating time-varying price elasticities and apply the logic of the Hypothetical Monopolist Test to delineate antitrust markets. They provide strong empirical support to the approach consisting in defining relevant markets contingent on the theory of harm. We discuss the relevance of these findings in the context of ongoing cases.

Suggested Citation

  • 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.
  • Handle: RePEc:eca:wpaper:2013/315066
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    References listed on IDEAS

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    1. José Azar & Martin C. Schmalz & Isabel Tecu, 2018. "Anticompetitive Effects of Common Ownership," Journal of Finance, American Finance Association, vol. 73(4), pages 1513-1565, August.
    2. Castanheira, Micael & Ornaghi, Carmine & Siotis, Georges, 2019. "The unexpected consequences of generic entry," Journal of Health Economics, Elsevier, vol. 68(C).
    3. 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.
    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. Darius Lakdawalla & Tomas Philipson, 2012. "Does Intellectual Property Restrict Output? An Analysis of Pharmaceutical Markets," Journal of Law and Economics, University of Chicago Press, vol. 55(1), pages 151-187.
    6. Marc-André Gagnon & Joel Lexchin, 2008. "The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States," PLOS Medicine, Public Library of Science, vol. 5(1), pages 1-5, January.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    market definition; competition policy; antitrust; 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
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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