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Entry deterrence and mergers under price competition in pharmaceutical markets

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  • Laurent Granier
  • Sebastien Trinquard

Abstract

After patent expirations in pharmaceutical markets, brand-name laboratories are threatened by generic firms' entry. To fill the gap in the theoretical literature on this topic, we study brand-name firms' incentives either to deter entry, or to merge with the entrant. These strategies are considered along with the possibility of the brand-name firm producing its own generic drug, called a pseudo-generic drug. Using a vertical differentiation model with Bertrand-Stackelberg competition, we show that each strategy, merging and deterring entry, may be Nash equilibrium, according to the generic firm's setup cost level and to the rate of discount.

Suggested Citation

  • Laurent Granier & Sebastien Trinquard, 2010. "Entry deterrence and mergers under price competition in pharmaceutical markets," Applied Economics, Taylor & Francis Journals, vol. 42(3), pages 297-309.
    • Handle: RePEc:taf:applec:v:42:y:2010:i:3:p:297-309
    DOI: 10.1080/00036840701604495
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    References listed on IDEAS

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    1. Laurent Granier, 2008. "Endogenous mergers and cost heterogeneity," Applied Economics, Taylor & Francis Journals, vol. 40(14), pages 1865-1871.
    2. Granier, L. & Trinquard, S., 2006. "Pseudo-Generic Products and Mergers in Pharmaceutical Markets," Cahiers du LASER (LASER Working Papers) 2006.18, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1.
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    Cited by:

    1. Laurent Granier & S颡stien Trinquard, 2012. "Predation in off-patent drug markets," Applied Economics, Taylor & Francis Journals, vol. 44(17), pages 2171-2186, June.
    2. Vasco Rodrigues & Ricardo Gonçalves & Hélder Vasconcelos, 2014. "Anti-Competitive Impact of Pseudo-Generics," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 83-98, March.
    3. Laurent Granier & Sébastien Trinquard, 2011. "Predation in Off-Patent Drug Markets," Post-Print hal-00687806, HAL.

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