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Common Ownership and Market Entry: Evidence from the Pharmaceutical Industry
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Common Ownership and Market Entry: Evidence from the Pharmaceutical Industry

Author

Listed:
  • Albert Banal-Estañol
  • Melissa Newham
  • Jo Seldeslachts

Abstract

Common ownership - where two firms are at least partially owned by the same investor - and its impact on product market outcomes has recently drawn attention from scholars and practitioners. Previous research links common ownership with higher prices. This paper focuses on implications for market entry. In particular, we consider the entry decisions of generic pharmaceutical firms into drug markets opened up by the end of regulatory protection in the US. We provide a theoretical framework that shows that greater common ownership between the brand rm (incumbent) and a potential generic entrant reduces the likelihood that the generic enters. We find robust evidence for this prediction. The negative effect of common ownership on entry is large: a one-standard-deviation increase in common ownership decreases the probability of generic entry by 9-13%. We extend our basic framework to allow for strategic interaction between generics' entry decisions, and show that our main prediction still holds. Further, our model shows that the classical idea of entry decisions being strategic substitutes can be reversed into being strategic complements for sufficiently high levels of common ownership between the brand and potential generic entrants. We find some empirical support for this prediction.

Suggested Citation

  • Albert Banal-Estañol & Melissa Newham & Jo Seldeslachts, 2018. "Common Ownership and Market Entry: Evidence from the Pharmaceutical Industry," Working Papers 1042, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1042
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    2. Gibbon, Alexandra J. & Schain, Jan Philip, 2023. "Rising markups, common ownership, and technological capacities," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    3. Brito, Duarte & Ribeiro, Ricardo & Vasconcelos, Helder, 2020. "Overlapping ownership, endogenous quality, and welfare," Economics Letters, Elsevier, vol. 190(C).
    4. Sato, Susumu & Matsumura, Toshihiro, 2020. "Free entry under common ownership," Economics Letters, Elsevier, vol. 195(C).
    5. Papadopoulos, Konstantinos G. & Petrakis, Emmanuel & Skartados, Panagiotis, 2019. "Product innovation transfer under passive partial ownership holdings," Economics Letters, Elsevier, vol. 177(C), pages 22-25.
    6. Ruichang Lu & Qiaowei Shen & Tenghui Wang & Xiaojun Zhang, 2022. "Frenemies: Corporate Advertising Under Common Ownership," Management Science, INFORMS, vol. 68(6), pages 4645-4669, June.
    7. Nuria Boot & Jo Seldeslachts & Albert Banal Estañol, 2022. "Common ownership: Europe vs. the US," Working Papers of Department of Management, Strategy and Innovation, Leuven 700180, KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven.
    8. Shy, Oz & Stenbacka, Rune, 2019. "An OLG model of common ownership: Effects on consumption and investments," Journal of Macroeconomics, Elsevier, vol. 62(C).
    9. Steven C. Salop & Fiona Scott Morton, 2021. "The 2010 HMGs Ten Years Later: Where Do We Go From Here?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(1), pages 81-101, February.
    10. Gilje, Erik P. & Gormley, Todd A. & Levit, Doron, 2020. "Who's paying attention? Measuring common ownership and its impact on managerial incentives," Journal of Financial Economics, Elsevier, vol. 137(1), pages 152-178.
    11. Antonio Estache & Christophe Kieffer, 2021. "Does Common Ownership Influence the Financial Strategy of the French Pharmaceutical Firms?," Working Papers ECARES 2021-09, ULB -- Universite Libre de Bruxelles.
    12. Stenbacka, Rune & Van Moer, Geert, 2023. "Overlapping ownership and product innovation," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    13. Lysle Boller & Fiona Scott Morton, 2020. "Testing the Theory of Common Stock Ownership," NBER Working Papers 27515, National Bureau of Economic Research, Inc.
    14. Oz Shy & Rune Stenbacka, 2020. "Common ownership, institutional investors, and welfare," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(3), pages 706-723, July.

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    More about this item

    Keywords

    market entry; ownership structure; pharma;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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