Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/201417
Authors: 
Newham, Melissa
Seldeslachts, Jo
Banal-Estañol, Albert
Year of Publication: 
2018
Series/Report no.: 
DIW Discussion Papers 1738
Abstract: 
Common ownership - where two firms are at least partially owned by the same investor - and its impact on product market outcomes has recently drawn attention from scholars and practitioners. Previous research links common ownership with higher prices. This paper focuses on implications for market entry. In particular, we consider the entry decisions of generic pharmaceutical firms into drug markets opened up by the end of regulatory protection in the US. We provide a theoretical framework that shows that greater common ownership between the brand firm (incumbent) and a potential generic entrant reduces the likelihood that the generic enters. We find robust evidence for this prediction. The negative effect of common ownership on entry is large: a one-standard-deviation increase in common ownership decreases the probability of generic entry by 9-13%. We extend our basic framework to allow for strategic interaction between generics' entry decisions, and show that our main prediction still holds. Further, our model shows that the classical idea of entry decisions being strategic substitutes can be reversed into being strategic complements for sufficiently high levels of common ownership between the brand and potential generic entrants. We find some empirical support for this prediction.
Subjects: 
Market Entry
Ownership Structure
Pharma
JEL: 
G23
K21
L11
L41
L65
Document Type: 
Working Paper
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