NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

MINJAE SONG

Assistant Professor
Simon Graduate School of Business
University of Rochester
Rochester, NY 14627-0100

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NBER Working Papers and Publications

August 2010Bundling Among Rivals: A Case of Pharmaceutical Cocktails
with Claudio Lucarelli, Sean Nicholson: w16321
We empirically analyze the welfare effects of cross-firm bundling in the pharmaceutical industry. Physicians often treat patients with "cocktail" regimens that combine two or more drugs. Firms cannot price discriminate because each drug is produced by a different firm and a physician creates the bundle in her office from the component drugs. We show that a less competitive equilibrium arises with cocktail products because firms can internalize partially the externality their pricing decisions impose on competitors. The incremental profits from creating a bundle are sometimes as large as the incremental profits from a merger of the same two firms.
 
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