Pseudo-Generic Products and Mergers in Pharmaceutical Markets

This paper fills the gap in the theoretical literature concerning mergers between brand-name and generic laboratories in pharmaceutical markets. To prevent generic firms from increasing their market share, some brand-name furms produce generics themselves, called pseudo-generics, enabling them to set up barriers to entry. We develop this topic by considering the pseudo-generics production as a mergers.catalyst. We show, in a duopoly model with substitutable goods, in which a brand-name firm and a generic firm compete à la Cournot, that a brand-name company always has an incentive to purchase its competitor. The key insight of this paper is that the brand-name laboratory can increase its merger gain by producing pseudo-generics beforehand. In some cases, pseudo-generics would not otherwise be produced.