Defining Relevant Product Markets for Pharmaceuticals

Oana Mihaescu () and Niklas Rudholm
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Niklas Rudholm: HUI Research, Postal: HUI Research, SE-103 29 Stockholm, Sweden and Dalarna University, SE-791 88, Falun, Sweden

No 96, HUI Working Papers from HUI Research

Abstract: To identify the relevant product markets for Swedish pharmaceuticals, a spatial econometrics approach is employed. First, we calculate Moran’s Is for different market definitions and then we use a spatial Durbin model to determine the effect of price changes on quantity sold off own and competing products. As expected, the results show that competition is strongest between close substitutes; however, the relevant product markets for Swedish pharmaceuticals extend beyond close substitutes down to products included in the same class on the four-digit level of the Anatomic Therapeutic Chemical system as defined by the World Health Organization. The spatial regression model further indicates that increases in the price of a product significantly lower the quantity sold of that product and in the same time increase the quantity sold of competing products. For close substitutes (products belonging to the same class on the seven-digit level of the Anatomic Therapeutic Chemical system), as well as for products that, without being close substitutes, belong to the same therapeutic/pharmacological/chemical subgroup (the same class on the five-digit level of the Anatomic Therapeutic Chemical system), a significant change towards increased competition is also visible after 1 July 2009 when the latest policy changes with regards to pharmaceuticals have been implemented in Sweden.

Keywords: market delineation; competition; horizontal merger guidelines; spatial Durbin model; market reform (search for similar items in EconPapers)
JEL-codes: L11 L25 L26 L81 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2013-08-27
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