DP14035 Market Definition and Competition Policy Enforcement in the Pharmaceutical Industry

Author(s): Micael Castanheira, Carmine Ornaghi, Georges Siotis
Publication Date: October 2019
Date Revised: December 2020
Keyword(s): Antitrust, competition policy, Market Definition, Pharmaceutical industry
JEL(s): D22, I11, L22
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14035

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.