The Nature of Pharmaceutical Competition: Implications for Antitrust Analysis

Competition among alternative pharmaceutical products occurs within therapeutic areas and is importantly conditioned upon whether it occurs among therapeutic substitutes (alternative molecules - differentiated products) or within a particular molecule (a brand-name drug and its generic substitutes -homogeneous products). Healthcare institutions treat substitution among brand-name and generic drugs differently. Hence, competition among therapeutic substitutes may be considerably different from competition between a brand-name drug and its generics. We address these distinct competitive behaviors in the context of an active antitrust issue - foreclosure of generic entry. We empirically examine the contours of the relevant antitrust markets in two ways. We use the hypothetical monopolist test of the DOJ Merger Guidelines, and we conduct exemplar empirical analyses for two therapies (alpha blockers and antidepressants). We demonstrate that price competition occurs primarily at the level of the molecule. Our work provides a general framework for analyzing and defining antitrust markets in the pharmaceutical industry.