Pricing Behavior in the Indian Pharmaceutical Industry under the Threat of Entry

Medicines are expensive. A direct increase in competition can drive down prices, but can an indirect increase in competition have the same effect? In this study, the effect of an increase in the threat of entry (TOE) on prices is assessed. Although the relation between the TOE and prices is theoretically wellestablished, no clear empirical evidence is available on the effect of an increase in the TOE on prices. The effect of the TOE on prices is empirically hard to study, because the TOE is unobserved. This thesis aims to shed light on the relationship between the TOE and prices in two steps. First, a new measure for the TOE is constructed using multiple exogenous factors that influence the TOE. Second, the measure for the TOE is used to assess the influence on prices in the market of 84 combination medicines in India. The analysis indicates that an increase in the TOE is associated with a relative decrease of the price of a combination medicine.