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Defining Relevant Product Markets for Pharmaceuticals

Author

Listed:
  • Mihaescu, Oana

    (HUI Research)

  • Rudholm, Niklas

    (HUI Research)

Abstract

To identify the relevant product markets for Swedish pharmaceuticals, a spatial econometrics approach is employed. First, we calculate Moran’s Is for different market definitions and then we use a spatial Durbin model to determine the effect of price changes on quantity sold off own and competing products. As expected, the results show that competition is strongest between close substitutes; however, the relevant product markets for Swedish pharmaceuticals extend beyond close substitutes down to products included in the same class on the four-digit level of the Anatomic Therapeutic Chemical system as defined by the World Health Organization. The spatial regression model further indicates that increases in the price of a product significantly lower the quantity sold of that product and in the same time increase the quantity sold of competing products. For close substitutes (products belonging to the same class on the seven-digit level of the Anatomic Therapeutic Chemical system), as well as for products that, without being close substitutes, belong to the same therapeutic/pharmacological/chemical subgroup (the same class on the five-digit level of the Anatomic Therapeutic Chemical system), a significant change towards increased competition is also visible after 1 July 2009 when the latest policy changes with regards to pharmaceuticals have been implemented in Sweden.

Suggested Citation

  • Mihaescu, Oana & Rudholm, Niklas, 2013. "Defining Relevant Product Markets for Pharmaceuticals," HUI Working Papers 96, HUI Research.
    • Handle: RePEc:hhs:huiwps:0096
    as

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    References listed on IDEAS

    as
    1. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
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    More about this item

    Keywords

    market delineation; competition; horizontal merger guidelines; spatial Durbin model; market reform;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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