Bundling Among Rivals: A Case of Pharmaceutical Cocktails

Claudio Lucarelli, Sean Nicholson and Minjae Song ()

No 16321, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We empirically analyze the welfare effects of cross-firm bundling in the pharmaceutical industry. Physicians often treat patients with "cocktail" regimens that combine two or more drugs. Firms cannot price discriminate because each drug is produced by a different firm and a physician creates the bundle in her office from the component drugs. We show that a less competitive equilibrium arises with cocktail products because firms can internalize partially the externality their pricing decisions impose on competitors. The incremental profits from creating a bundle are sometimes as large as the incremental profits from a merger of the same two firms.

JEL-codes: I11 L1 L11 (search for similar items in EconPapers)
Date: 2010-08
New Economics Papers: this item is included in nep-bec, nep-com and nep-hea
Note: EH IO
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Citations: View citations in EconPapers (5)

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