Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Tuesday, March 23, 2010

Inferring the Effects of Vertical Integration from Entry Games: An Analysis of the Generic Pharmaceutical Industry

Posted by D. Daniel Sokol

Kensuke Kubo has written on Inferring the Effects of Vertical Integration from Entry Games: An Analysis of the Generic Pharmaceutical Industry.

ABSTRACT: This paper introduces a novel method for examining the effects of vertical integration. The basic idea is to estimate the parameters of a vertical entry game. By carefully specifying firms' payoff equations and constructing appropriate tests, it is possible to use estimates on rival profit effects to make inferences about the existence of vertical foreclosure. I estimate the vertical entry model using data from the US generic pharmaceutical industry. The estimates indicate that vertical integration is unlikely to generate anticompetitive foreclosure effects. On the other hand, significant efficiency effects are found to arise from vertical integration. I use the parameter estimates to simulate a policy that bans vertically integrated entry. The simulation results suggest that such a ban is counterproductive; it is likely to reduce entry into smaller markets.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/03/inferring-the-effects-of-vertical-integration-from-entry-games-an-analysis-of-the-generic-pharmaceut.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef01310f7527a1970c

Listed below are links to weblogs that reference Inferring the Effects of Vertical Integration from Entry Games: An Analysis of the Generic Pharmaceutical Industry :

Comments

Post a comment