Predicting Competitive Effects from Prescription Drug Mergers: How Standard Economic Analysis Can Go Wrong

Abstract

Key insights on the unilateral competitive effects of mergers derive from economic models built on behavioral assumptions and mathematical regularity conditions ensuring that merger effects are determined by the premerger margin of competition between products combined. But the usual behavioral assumptions and regularity conditions might not hold for prescription drugs, and the usual insights might not apply. Analysis of a simple model based on the facts of FTC v. Lundbeck shows that weak competition between two therapeutic substitute drugs plausibly results in monopoly prices, so merging them has no effect on their prices.