Entry deterrence and mergers under price competition in pharmaceutical markets

Laurent Granier and Sebastien Trinquard

Applied Economics, 2010, vol. 42, issue 3, 297-309

Abstract: After patent expirations in pharmaceutical markets, brand-name laboratories are threatened by generic firms' entry. To fill the gap in the theoretical literature on this topic, we study brand-name firms' incentives either to deter entry, or to merge with the entrant. These strategies are considered along with the possibility of the brand-name firm producing its own generic drug, called a pseudo-generic drug. Using a vertical differentiation model with Bertrand-Stackelberg competition, we show that each strategy, merging and deterring entry, may be Nash equilibrium, according to the generic firm's setup cost level and to the rate of discount.

Date: 2010
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Working Paper: Entry Deterrence and Mergers under Price Competition in Pharmaceutical Markets (2010)
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DOI: 10.1080/00036840701604495

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