Affiliation: Aalto University
Title: Competition or Collusion? Entry Decisions in the Swedish Pharmaceutical Market
Abstract:
We document large price differences across package sizes for the same products in the Swedish pharmaceutical market where monthly auctions for each active ingredient--dosage form--strength--package size combination channel a large part of demand to the winner, with high prices per pill occurring in monopoly auctions (package sizes). These prices are sustained by the fact that patients cannot substitute across package sizes. In some markets this is suggestive of tacit collusion, in others, of intense post-entry competition. Our counterfactual analyses yield large savings in possibly tacitly collusive markets when monopoly package sizes are removed or when substitution across package sizes is allowed.