Thursday, November 14, 2019
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, and Georges Siotis, Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR) ask Market Definition in the Pharmaceutical Industry: A Case of Drugs Hopping Antitrust Markets?
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.