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Reverse Payments and Risk of Bankruptcy Under Private Information

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  • Anton-Giulio Manganelli

Abstract

In the pharmaceutical industry, a reverse payment (pay-for-delay) is a payment from an originator to a generic producer to delay her entry. In some recent cases, the US and EU antitrust authorities have banned these agreements per se, while in others they have used a rule of reason. This paper analyzes their dynamic effects and shows that a ban per se may reduce consumer surplus when the generic producer may go bankrupt and her financial situation is private information. Reverse payments are more beneficial when competition among few players is soft, the economy is in a downturn, and the period of drug usage after patent expiry is long. Results suggest that a rule of reason is more suited than a ban per se.

Suggested Citation

  • Anton-Giulio Manganelli, 2019. "Reverse Payments and Risk of Bankruptcy Under Private Information," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 26(3), pages 411-429, September.
    • Handle: RePEc:taf:ijecbs:v:26:y:2019:i:3:p:411-429
    DOI: 10.1080/13571516.2019.1613146
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    Cited by:

    1. Anton‐Giulio Manganelli, 2021. "Reverse payments, patent strength, and asymmetric information," Health Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 20-35, January.

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