Predation in Off-Patent Drug Markets

In 2009, Sanofi-Aventis, whose generic subsidiary is Winthrop, merges with the generic firm, Zentiva. This paper fills the gap in the theoretical literature concerning mergers in pharmaceutical markets. To prevent generic firms from increasing their market share, some brand-name firms produce generics themselves, called pseudo- generics. We develop a Cournot duopoly model by considering the pseudo-generics production as a mergers’ catalyst. We show that a brand-name company always has an incentive to purchase its competitor. The key insight of this paper is that the brand-name laboratory can increase its merger gain by producing pseudo-generics beforehand. In some cases, pseudo-generics would not otherwise be produced and this production is then a predatory strategy.