Working Paper: CEPR ID: DP14035
Authors: Georges Siotis; Carmine Ornaghi; Micael Castanheira
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.
Keywords: market definition; pharmaceutical industry; competition policy; antitrust
JEL Codes: D22; I11; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Generic entry (Y90) | Competitive constraints (L13) |
| Generic entry (Y90) | Market-wide effects (G19) |
| Generic entry (Y90) | Softening of competitive pressure for originators (D43) |
| Loss of exclusivity (LOE) (L24) | Competitive pressure faced by originators (D43) |
| Generic entry (Y90) | Shrinkage of initial antitrust market (L49) |
| Generic entry (Y90) | High own and cross-price elasticities among generics (D12) |