Travail de recherche/Working paper
| Résumé : | This paper shows that a pro-competitive shock leading to a steep price dropin one market segment may benefit substitute products. Consumers move awayfrom the cheaper product, demand for the substitutes increases, leading tohigher prices and possibly a drop in consumer surplus. The channel leadingto this outcome is non-price competition: the competitive shock on the firstset of products decreases the firms' ability to invest in promotion andother instruments, which cripples their ability to lure consumers.To assess the empirical relevance of these findings, we study the effects of genericentry in the pharmaceutical industry by exploiting a large product-level datasetfor the US covering the period 1994Q1 to 2003Q4.We identify a striking piece ofevidence: typically, a molecule that loses patent protection (the originatordrug plus its generic competitors) experiences a steep fall in market shareirrespective of whether it is measured in value or in quantity. This,despite being sold at a fraction of the original price |
