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American Economic Journal: Microeconomics: Vol. 3 No. 1 (February 2011)
AEJ: Micro Volume. 3, Issue 1 | 
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Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration
Article Citation
Ellison, Glenn, and
Sara Fisher Ellison. 2011. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration."
American Economic Journal: Microeconomics,
3(1): 1-36.
DOI: 10.1257/mic.3.1.1
DOI: 10.1257/mic.3.1.1
Abstract
This paper develops a new approach to testing for strategic entry deterrence and applies it to the behavior of pharmaceutical incumbents before patent expiration. It examines a cross section of markets, determining whether behavior is nonmonotonic in market size.
Under some conditions, investment levels will be monotone in market size if firms do not invest to deter entry. Strategic investments to deter entry, however, may result in nonmonotonic investment because they are unnecessary in small markets, and impossible in large ones. Consistent with an entry-deterrence motivation is the finding that incumbents in medium-sized markets advertise less prior to patent expiration. (JEL D92, G31, L11, L21, L65)
Article Full-Text Access
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Authors
Ellison, Glenn (MIT)
Ellison, Sara Fisher (MIT)
Ellison, Sara Fisher (MIT)
JEL Classifications
D92: Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L21: Business Objectives of the Firm
L65: Chemicals; Rubber; Drugs; Biotechnology
G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L21: Business Objectives of the Firm
L65: Chemicals; Rubber; Drugs; Biotechnology
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