Essays on entry and market profitability in the UK pharmaceuticals

• Main Author: Yan, Weijie
• Published: University of East Anglia 2019
• Online Access: https://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.768456

This thesis applies economic methods developed in industrial organization to assess entry barriers and profitability of the pharmaceutical market in the UK. The thesis has two parts. The first part investigates whether incumbent firms strategically proliferate product varieties to delay and deter entry of competitors, and whether such strategy is effective to be a barrier. Three sets of regressions are employed: a non-monotonicity test between number of products and market size, as proposed by Ellison and Ellison (2011); a hazard rate model of entry probability, with focus on whether entry can be influenced by product varieties; and a regression of incumbent's market share post entry to test whether their share is positively correlated with product varieties built prior to entry. The results suggest that product proliferation can be a barrier to entry in the UK, however, evidence on incumbents' strategic incentive is inconclusive. The second part of the thesis focuses on antibiotic market. With the use of antibiotics, bacteria start to develop resistance, which has became a global crisis in healthcare. Despite the need for new entries because old molecules are losing effectiveness, research firms are leaving this market. We use nested logit and random coefficients logit model to estimate the price elasticity of demand between drugs in order to assess the profitability of the market and to evaluate policy interventions of shifting consumption away from molecules that cause higher resistance. We find that price-cost margin of this market is 35.2% on average but varies by molecules and drug types (branded/generics). We also find that some interventions can be effective to shift demand but with prices to pay.