Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration
American Economic Journal: Microeconomics
vol. 3,
no. 1, February 2011
(pp. 1-36)
(Complimentary)
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)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.3.1.1Additional Materials
JEL Classification
- D25 Intertemporal Firm Choice, Investment, Capacity, and Financing
- 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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