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

• DOI: 10.1177/0003603X1405900309
• Published date: 01 September 2014
• Date: 01 September 2014
• Author: Gregory J. Werden
• Subject Matter: Lundbeck: A Prescription Drug Merger—Articles & Commets

THE ANTITRUST BUL L E T I N :Vol. 59, N o. 3/Fall 2 014 :593

Predicting competitive effects

from prescription drug mergers:

How standard economic

analysis can go wrong

BYGREGORY J. WERDEN*

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 competitio n between

two th erap euti c subs titu te dru gs pla usib ly res ults i n mono poly

prices, so merging them has no effect on their prices.

KEY WORDS:drug competition, pharmaceutical mergers, merger antitrus t,

unilateral effects

© 2014by Federal Legal Publications, Inc.

* Senior Economic Counsel, Antitrust Division, U.S. Department of

Justice.

AUTHOR’S NOTE: The views expressed herein do not purport to reflect those of the

U.S. Department of Justice.