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The Price Effects of Competition from Parallel Imports and Therapeutic Alternatives: Using Dynamic Models to Estimate the Causal Effect on the Extensive and Intensive Margins

David Granlund ()
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David Granlund: Umeå School of Business, Economics and Statistics, Umeå University

Review of Industrial Organization, 2022, vol. 60, issue 1, No 3, 63-92

Abstract: Abstract This paper studies responses to competition with the use of dynamic models that distinguish between short- and long-term price effects. The dynamic models also allow lagged numbers of competitors to become valid and strong instruments for the current numbers, which enables studying the causal effects using flexible specifications. A first parallel trader is found to decrease prices of exchangeable products by 7% in the long term. On the other hand, prices do not respond to the first competitor that sells therapeutic alternatives; but competition from four or more competitors that sell on-patent therapeutic alternatives decreases prices by about 10% in the long term.

Keywords: Brand-name drugs; Dynamic model; Parallel trade; Pharmaceutical industry; Price competition; Therapeutic competition (search for similar items in EconPapers)
JEL-codes: D40 I13 L13 L65 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11151-021-09834-x

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