Market Definition and Competition Policy Enforcement in the Pharmaceutical Industry

36 Pages Posted: 7 Oct 2019 Last revised: 18 Oct 2019

See all articles by Micael Castanheira

Micael Castanheira

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR)

Carmine Ornaghi

University of Southampton

Georges Siotis

Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: October 2019

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.

JEL Classification: D22, I11, L22

Suggested Citation

Castanheira, Micael and Ornaghi, Carmine and Siotis, Georges, Market Definition and Competition Policy Enforcement in the Pharmaceutical Industry (October 2019). CEPR Discussion Paper No. DP14035, Available at SSRN: https://ssrn.com/abstract=3465747

Micael Castanheira (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
+32 2 650 4467 (Phone)
+32 2 650 3369 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Carmine Ornaghi

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, SO17 1LP
United Kingdom

Georges Siotis

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9312 (Phone)
+34 91 624 9875 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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