TY  - JOUR
AU  - Ellison,Glenn
AU  - Ellison,Sara Fisher
TI  - Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13069
PY  - 2007
Y2  - April 2007
UR  - http://www.nber.org/papers/w13069
L1  - http://www.nber.org/papers/w13069.pdf
N1  - Author contact info:
Glenn Ellison
Department of Economics
Massachusetts Institute of Technology
50 Memorial Drive, E52-380A
Cambridge, MA 02142-1347
Tel: 617/253-8702
Fax: 617/253-1330
E-Mail: gellison@mit.edu

Sara Fisher Ellison
MIT, E52-274A
50 Memorial Drive
Cambridge, MA  02142
Tel: 617-253-3821
Fax: 617-253-1330
E-Mail: sellison@mit.edu
AB  - This paper develops a new approach to testing for strategic entry deterrence and applies it to the behavior of pharmaceutical incumbents just before they lose patent protection. The approach involves looking at a cross-section of markets and examining whether behavior is nonmonotonic in the size of the market. Under certain conditions, investment levels will be monotone in market size if firms are not influenced by a desire to deter entry.  Strategic investments, however, may be nonmonotone because entry deterrence is unnecessary in very small markets and impossible in very large ones, resulting in overall nonmonotonic investment.  The pharmaceutical data contain advertising, product proliferation, and pricing information for a sample of drugs which lost patent protection between 1986 and 1992. Among the findings consistent with an entry deterrence motivation are that incumbents in markets of intermediate size have lower levels of advertising and are more likely to reduce advertising immediately prior to patent expiration.
ER  -