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Product line extensions under the threat of entry: evidence from the UK pharmaceuticals market

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  • Bokhari, Farasat A. S.
  • Yan, Weijie

Abstract

Do firms increase product lines to deter entry and, if so, when is such a strategy successful? We use data from the UK pharmaceuticals to examine how incumbents respond to change in the threat of entry. In line with the entry deterrence motive, originators' product launch rate is higher when the risk of entry is moderate, but becomes lower when entry is very likely, and the effect is most pronounced in medium size markets. We further find that in medium size markets, originators can deny entry via proliferation if they fill the product space evenly across patients so that each variant has a significant market share of the originators drugs. This does not work in large markets, but here entry is deterred when originators engage in product hopping, i.e., shift most of the patients to newer variants of the drug that may still be protected by intellectual property.
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  • Bokhari, Farasat A. S. & Yan, Weijie, 2020. "Product line extensions under the threat of entry: evidence from the UK pharmaceuticals market," Papers WP678, Economic and Social Research Institute (ESRI).
    • Handle: RePEc:esr:wpaper:wp678
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    Cited by:

    1. Hattori, Keisuke & Yamada, Mai, 2020. "Welfare Implications of Sequential Entry with Heterogeneous Firms," MPRA Paper 103422, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L79 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Other

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