The Nature of Pharmaceutical Competition: Implications for Antitrust Analysis

Richard G. Frank and Raymond S. Hartman

International Journal of the Economics of Business, 2015, vol. 22, issue 2, 301-343

Abstract: Competition among alternative pharmaceutical products occurs within therapeutic areas and is importantly conditioned upon whether it occurs among therapeutic substitutes (alternative molecules - differentiated products) or within a particular molecule (a brand-name drug and its generic substitutes - homogeneous products). Healthcare institutions treat substitution among brand-name and generic drugs differently. Hence, competition among therapeutic substitutes may be considerably different from competition between a brand-name drug and its generics. We address these distinct competitive behaviors in the context of an active antitrust issue - foreclosure of generic entry. We empirically examine the contours of the relevant antitrust markets in two ways. We use the hypothetical monopolist test of the DOJ Merger Guidelines , and we conduct exemplar empirical analyses for two therapies (alpha blockers and antidepressants). We demonstrate that price competition occurs primarily at the level of the molecule. Our work provides a general framework for analyzing and defining antitrust markets in the pharmaceutical industry.

Date: 2015
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DOI: 10.1080/13571516.2015.1045745

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