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Common Ownership and Market Entry: Evidence from the Pharmaceutical Industry

Melissa Newham, Jo Seldeslachts () and Albert Banal-Estanol ()

No 1042, Working Papers from Barcelona Graduate School of Economics

Abstract: Common ownership - where two firms are at least partially owned by the same investor - and its impact on product market outcomes has recently drawn attention from scholars and practitioners. Previous research links common ownership with higher prices. This paper focuses on implications for market entry. In particular, we consider the entry decisions of generic pharmaceutical firms into drug markets opened up by the end of regulatory protection in the US. We provide a theoretical framework that shows that greater common ownership between the brand rm (incumbent) and a potential generic entrant reduces the likelihood that the generic enters. We find robust evidence for this prediction. The negative effect of common ownership on entry is large: a one-standard-deviation increase in common ownership decreases the probability of generic entry by 9-13%. We extend our basic framework to allow for strategic interaction between generics' entry decisions, and show that our main prediction still holds. Further, our model shows that the classical idea of entry decisions being strategic substitutes can be reversed into being strategic complements for sufficiently high levels of common ownership between the brand and potential generic entrants. We find some empirical support for this prediction.

Keywords: market entry; ownership structure; pharma (search for similar items in EconPapers)
JEL-codes: G23 K21 L11 L41 L65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-reg
Date: 2018-05
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Working Paper: Common Ownership and Market Entry: Evidence from the Pharmaceutical Industry (2018) Downloads
Working Paper: Common Ownership and Market Entry: Evidence from Pharmaceutical Industry (2018) Downloads
Working Paper: Common ownership and market entry: Evidence from the pharmaceutical industry (2018) Downloads
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