Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration / Glenn Ellison, Sara Fisher Ellison.

Format:

Book

Author/Creator:

Ellison, Glenn.

Contributor:

National Bureau of Economic Research.

Ellison, Sara Fisher.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13069.

NBER working paper series no. w13069

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

This paper develops a new approach to testing for strategic entry deterrence and applies it to the behavior of pharmaceutical incumbents just before they lose patent protection. The approach involves looking at a cross-section of markets and examining whether behavior is nonmonotonic in the size of the market. Under certain conditions, investment levels will be monotone in market size if firms are not influenced by a desire to deter entry. Strategic investments, however, may be nonmonotone because entry deterrence is unnecessary in very small markets and impossible in very large ones, resulting in overall nonmonotonic investment. The pharmaceutical data contain advertising, product proliferation, and pricing information for a sample of drugs which lost patent protection between 1986 and 1992. Among the findings consistent with an entry deterrence motivation are that incumbents in markets of intermediate size have lower levels of advertising and are more likely to reduce advertising immediately prior to patent expiration.

Notes:

Print version record

April 2007.