On the Application of Nash Bargaining in Reverse Payment Cases in the Pharmaceutical Industry

Sencer Ecer, Rodrigo Montes () and David Weiskopf ()
Additional contact information
Rodrigo Montes: Compass Lexecon
David Weiskopf: Compass Lexecon

European Journal of Law and Economics, 2020, vol. 50, issue 1, No 5, 133-147

Abstract: Abstract Some applications of Nash bargaining in the antitrust analysis of reverse payment settlements estimate the bargaining power parameter as the split of the surplus in the actual settlement with alleged reverse payments. This estimated parameter is then used as the bargaining power parameter in the but-for world where reverse payments are prohibited. We demonstrate that this approach is incorrect. Indeed, in the but-for world there could theoretically be an alternative “no payment” settlement where reverse payments are prohibited. However, the prohibition on reverse payments disproportionately affects the shape of the bargaining set in favor of the patent holder. With this asymmetry in the bargaining set, the estimated “bargaining power” in the actual world (with a settlement) no longer accurately reflects the split of the surplus that would have been agreed during the but-for negotiation with no payments. Moreover, we find that keeping the split of the surplus constant between the actual and but-for worlds is not innocuous because it overestimates the extent of alleged generic delay.

Keywords: Reverse payment cases in pharmaceutical industry; Nash bargaining solution; Antitrust litigation; Bargaining power; Division of surplus (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s10657-020-09661-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:kap:ejlwec:v:50:y:2020:i:1:d:10.1007_s10657-020-09661-7

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10657

DOI: 10.1007/s10657-020-09661-7

Access Statistics for this article

European Journal of Law and Economics is currently edited by Jürgen Georg Backhaus, Giovanni B. Ramello and Alain Marciano

More articles in European Journal of Law and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().