Inferring the Effects of Vertical Integration from Entry Games: An Analysis of the Generic Pharmaceutical Industry

Kensuke Kubo

No 221, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper introduces a novel method for examining the effects of vertical integration. The basic idea is to estimate the parameters of a vertical entry game. By carefully specifying firms'payoff equations and constructing appropriate tests, it is possible to use estimates on rival profiteffects to make inferences about the existence of vertical foreclosure. I estimate the vertical entry model using data from the US generic pharmaceutical industry. The estimates indicatethat vertical integration is unlikely to generate anticompetitive foreclosure effects. On the other hand, significant efficiency effects are found to arise from vertical integration. I use the parameter estimates to simulate a policy that bans vertically integrated entry. The simulation results suggest that such a ban is counterproductive; it is likely to reduce entry into smaller markets.

Keywords: United States; Pharmaceutical Industry; Monopolies; Vertical Integration; Vertical Foreclosure; Entry; Generic Pharmaceuticals (search for similar items in EconPapers)
JEL-codes: L10 L13 L22 L42 L65 (search for similar items in EconPapers)
Date: 2010-01-01
New Economics Papers: this item is included in nep-com
References: Add references at CitEc
Citations:

Published in IDE Discussion Paper = IDE Discussion Paper, No. 221. 2010-01-01

Downloads: (external link)
https://ir.ide.go.jp/record/37949/files/IDP000221_001.pdf First version, 2010 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jet:dpaper:dpaper221

Ordering information: This working paper can be ordered from
Publication Office, IDE 3-2-2 Wakaba, Mihama-ku, Chiba-shi, Chiba 261-8545 JAPAN
http://www.ide.go.jp/English/Publish/Order

Access Statistics for this paper

More papers in IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO) Contact information at EDIRC.
Bibliographic data for series maintained by Michitaka Imamitsu ().