Estimating the Causal Effect of Entry on Generic Drug Prices Using Hatch–Waxman Exclusivity

Competition among generics helps keep drug prices low and control medical costs. Good estimates of the effect on price of the entry of another generic competitor would inform competition policy and test oligopoly theories. However, identifying the causal effect of entry is difficult since the number of firms that compete in a market is endogenously determined. We exploit provisions of the 1984 Hatch–Waxman Act to identify a causal effect. We find that ignoring endogenous selection into generic drug markets imparts a significant downward bias to the estimates of the effects of two and three competitors on generic drug prices.     

The role of firm resources and organizational attributes in determining entry timing: a cross-industry study

We investigate the factors that influence the timing of entry of firms into new industries based on new technology. Consistent with previous research, it is hypothesized that firm resources and organizational attributes influence entry timing. Unlike previous research, there is specific consideration of how industry setting—specifically, the extent to which it offers first mover advantages—influences the ability to predict timing of entry. The ability to explain entry timing differed across industries, with success occurring in the industry with strong first mover advantages. Two categories of resources, technological and marketing, were found to be associated with early entry. The organizational attributes that influenced early entry were commitment to a threatened market and (surprisingly) greater size. © 1998 John Wiley & Sons, Ltd.     

Diversification entry: Internal development versus acquisition

The economic theory of barriers to entry is integrated with the corporate strategy concept of relatedness, to develop a model of the choice between internal development and acquisition in diversification entry into new markets. The model is tested on original data collected for this study from PIMS Program participants. These original data cover the parent company characteristics, entry strategy and entry outcome for 59 entrants into 31 markets. These entry-related data are merged with existing PIMS data on the structure of the entered markets and their incumbents. Results of binary regression analysis show that the choice between the two entry modes is well explained by measures of barriers and relatedness. Higher barriers are more likely to be associated with acquisition entry. Greater relatedness is more likely to be associated with direct entry.     

Fertilizer market liberalization and private retail trade in Kenya

This paper examined the factors influencing the entry and sales decision of private traders in fertilizer retail trade in a liberalized market using survey data from Kenya. A two-stage econometric model is used to examine traders’ entry and sales decision. The results provide insights into factors that are associated with private retail traders’ entry and sales decisions in an era of liberalized fertilizer markets. It shows substantial entry into fertilizer retail trade following market liberalization. Relatively limited investments in trading assets and equipment are predicted to hold back firm expansion. Implications drawn from the study provide insights into likely research and policy interventions.     

THE IMPACT OF INITIAL FINANCIAL STATE ON FIRM DURATION ACROSS ENTRY COHORTS*

Recent theories of industry dynamics emphasize the role of financial frictions in determining post entry performance of firms. Testing these theories has been difficult because of the lack of financial data on small, young and private firms. Using a unique data set, T2LEAP, this paper considers the survival of new firms in Canadian manufacturing from a financial perspective. Duration analysis quantifies the effects of firm, industry and aggregate factors. Findings show that nonlinear effects are found with firm leverage. Finally, likelihood decompositions offer insights into the contributing factors to firm hazard for nine entry cohorts during the period 1985–1997.     

Dual clocks: Entry order influences on incumbent and newcomer market share and survival when specialized assets retain their value

Entry order analysis often shows that early entrants to an industry or technical subfield of an industry outperform laggards. Some studies, though, have found that late entrants prevail. This paper tests dual-clock hypotheses of entry order effects on performance, measured both as market share and survival. One entry clock records the entry of all entrants to a new technical subfield within an industry, while a second clock records the entry of industry incumbents. Relative to the appropriate clock, early entrants are predicted to outperform laggards, but when entry is measured on only one clock, the estimated influences may be inaccurate. Error will be particularly likely if a study contains a survivor bias. The study, which finds entry timing trade-offs between market share and survival, is generalizable to cases in which a plausible set of conditions is found.     

The Entry-Inducing Effects of Horizontal Mergers: An Exploratory Analysis

Antitrust law presumes that entry normally prevents or reverses anticompetitive effects from horizontal mergers. But when sunk costs associated with entry are at levels suggested by prevailing market structure, the opportunity for entry created by an anticompetitive merger plausibly is too small to induce entry, even absent Stiglerian ‘barriers to entry.’ This is illustrated for Cournot and Bertrand models. Significant entry also makes otherwise profitable Bertrand mergers unprofitable, assuming no efficiency gains. Consequently, the entry issue can be collapsed into the efficiency issue: if a presumably profitable merger does not generate significant efficiencies, it cannot be expected to induce entry.     

Sunk Costs,Accommodation, and the Welfare Effects of Entry

Although economists usually support the unrestricted entry of firms into an industry, entry may lower social welfare if there are setup costs or if entrants have a cost disadvantage. We consider the welfare effects of entry within a standard Cournot model where some of an incumbent firm’s costs are sunk. We find that the range of parameter values over which entry can harm welfare declines monotonically in the fraction of cost that are sunk. Furthermore, the presence of even a small fraction of sunk costs often reverses an assessment that entry harms welfare.     

Entry in the ADHD drugs market: Welfare impact of generics and me‐too's

Recent decades have seen a growth in treatments for attention deficit hyperactivity disorder (ADHD) including many branded and generic drugs. In the early 2000's, new drug entry dramatically altered market shares. We estimate a demand system for ADHD drugs and assess the welfare impact of new drugs. We find that entry induced large welfare gains by reducing prices of substitute drugs, and by providing alternative delivery mechanisms for existing molecules. Our results suggest that the success of follow‐on patented drugs may come from unanticipated innovations like delivery mechanisms, a factor ignored by proposals to retard new follow‐on drug approvals.     

DISTANCE,BANK HETEROGENEITY AND ENTRY IN LOCAL BANKING MARKETS*

We examine the determinants of entry into Italian local banking markets during the period 1991–2002 and build a simple model in which the probability of branching in a new market depends on the features of both the local market and the potential entrant. Econometric findings show that banks are more likely to expand into those markets that are closest to their pre‐entry locations. Large banks are also more able to cope with distance‐related entry costs than small banks. Finally, banks have become increasingly able to open branches in distant markets, due to the advent of information and communication technologies.     

An empirical model of entry and exit in airline markets

This article considers the effect of airline hub-and-spoke systems on the entry and exit behavior of rival firms in the U.S. airline industry. An analysis of simple entry and exit decisions provides insight into equilibrium conditions that are used to specify discrete choice econometric models. The empirical evidence indicates that hub-and-spoke network characteristics are significant determinants of entry and exit decisions in individual citypair markets.     

CREDIBLE RETALIATORY ENTRY AND STRATEGIC TOE‐HOLDS*

The anticipated profits from entry by an established firm into a new market will depend on how incumbents in that market are expected to respond. One possibility, suggested by cases and the literature, is that an incumbent may respond with ‘retaliatory entry’ into the first entrant's ‘home’ market. The model presented here describes conditions under which this can be a credible threat that deters the first entry. When the conditions are such that it is not credible, the paper shows how firms can provide credibility through the establishment of toe‐hold investments in other markets.     

Determinants of Entry and Profits in Local Banking Markets

This paper estimates a two equation model of market entry and profits, utilizing data on entry into over 2,000 banking markets over the period 1977--88. The entry equations measure whether entry depends on incumbent firms' profits and other market attributes that reflect the long-term attractiveness of markets for entry. Market profits, assumed to follow a partial-adjustment process, are affected by entry directly and indirectly through market structure. The model also corrects for an unavoidable source of error in market-level profits for the banking industry. The estimates suggest that a competitive process is at work in banking markets that limits the ability of supra-normal profits to persist. Entry is more likely in markets that have high profits, consistent with previous empirical results that market structure adjusts more quickly when profits are supra-normal. Population and population growth are also strong determinants of entry. Entry, in turn, reduces profits in rural markets.     

Municipal electric utilities’ role in telecommunications services

Municipal electric utilities (MEUs) are increasingly expanding into telecommunications services. Such entry is interesting in several respects. First, MEUs marry two potential pathways for the growth of telecommunications access infrastructure and services: public ownership of last-mile facilities and electric power company expansion into telecommunications. Second, municipalities are key early adopters of next generation access technology in the form of both fiber-to-the-home (FTTH) and broadband wireless (e.g., WiMax) systems. Third, MEUs are at the nexus of the debate over the proper role for local government in promoting broadband Internet access. Most homes in the United States are served by investor-owned local telephone and cable television providers, using company-owned wireline infrastructure. These providers have generally opposed municipal entry, arguing that it will crowd out private investment and represents an unfair and less efficient form of competition. A number of states have acted to limit—or in some cases—to promote such entry. Before engaging in this debate, it is necessary to have a clearer picture of the current state of municipal entry and the local demographic, cost, industry, and policy factors that influence its evolution. To address this need, this paper reports the results of an empirical analysis of MEUs that provide communications services to the public. This analysis shows that MEUs are more likely to offer such services if they also provide internal communication services to support their electric utility operations (scope economies); are relatively close to metropolitan areas (lower backhaul costs); are in markets with fewer competitive alternatives (cable modem and DSL service availability limited); and which are less encumbered by regulatory barriers to entry (in communities in states which do not restrict municipal entry into telecommunication services). Of these results, the competitive impacts are the least straight-forward to interpret, suggesting richer dynamics and avenues for further research.     

Entry into Swedish Retail and Wholesale Trade Markets

This paper examines, using a zero-inflated negative binomial regression model, what determined entry into the Swedish retail and wholesale trade markets between 1990 and 1996. According to the results, high returns on equity and low sunk costs seemed to attract more entry into retail trade industries, while recent entry and higher total industry sales were associated with more entry into both retail and wholesale trade local markets.     

Entrepreneurial failure: Statistical and psychological explanations

Research summary : Entrepreneurial start‐ups suffer high rates of business failure. Previous research on entrepreneurial failure has focused on two kinds of explanations: statistical and psychological. Statistical explanations attribute excess entry to random errors made by boundedly rational entrepreneurs attempting to estimate business opportunities in risky markets. Psychological explanations focus on entrepreneurial overconfidence and competition neglect. These explanations emerged independently and have not been tested or compared in the same study. In this experimental study, we distinguish entrepreneurial markets from other types of markets and test statistical and psychological hypotheses for all market types. We find that excess entry is significantly greater in small, risky markets than in other market types, and that confidence levels account for excess entry, over and above the effects of unbiased statistical errors. Managerial summary : How can we explain the fact that most entrepreneurial ventures fail within five years? Market risk, inadequate capital and inexperienced management certainly play a role. However, from an economic point of view, it seems odd that inexperienced, under‐funded people continue to engage in risky behavior that is widely known to fail. We conducted experiments that tested two explanations of entrepreneurial failure. The first explanation – the statistical hypothesis – argues that entrepreneurship involves high uncertainty, so random errors are inevitable and can produce excess entry (or under‐entry). The second explanation – the psychological hypothesis – says that entrepreneurs' mistakes are not random but skewed heavily toward excess entry; hence, their decisions are distorted by psychological factors such as overconfidence. Our experiments found support for both of these explanations. Random errors under uncertainty explained 60% of the excess entry in our experiments. However, the overconfidence hypothesis correctly predicted that excess entry exceeds under‐entry, and our psychological measures of overconfidence found support in the data. We also found that the markets that most often attract entrepreneurial investment – emerging markets with high uncertainty – were the markets most conducive to excess entry, due to a combination of psychological and market factors. Hence, we conclude that potential entrepreneurs should pay less attention to their own abilities and aspirations, and more attention to the external realities of competition in the marketplace. Copyright © 2015 John Wiley & Sons, Ltd.     

The Impact of the Entry of Biosimilars: Evidence from Europe

Biologics represent a substantial and growing share of the U.S. drug market. Traditional “small molecule” generics quickly erode the price and share of the branded product upon entry, however only a few biosimilars have been approved in the US since 2015, thereby largely preserving biologics from competition. We analyze European markets, which have had biosimilar competition since 2006. Using our own survey, we analyze how market features and public policies predict biosimilar entry, price, and penetration, finding significant heterogeneity across countries and products. Effective buyer institutions are associated with increased biosimilar penetration. Our estimates can inform ongoing policy discussions.     

An eclectic theory of the choice of international entry mode

The choice of entry mode into a foreign market has a major impact on the success of a firm's international operations. However, the existing literature on the entry mode decision has either presented a list of considerations without identifying underlying constructs, or treated each entry decision in isolation. Here, a unifying framework is developed. This framework identifies three underlying constructs that influence the entry mode decision. These constructs are linked to considerations that have been previously discussed in the literature. It is argued that a firm's choice of entry mode depends on the strategic relationship the firm envisages between operations in different countries. A particular entry decision cannot be viewed in isolation. It must be considered in relation to the overall strategic posture of the firm. Further, the paper argues that different variables often suggest different entry modes, and that resolving these differences involves accepting trade-offs.     

When experience meets national institutional environmental change: foreign entry attempts of U.S. firms in the Central and Eastern European region

We develop an institutional change perspective to examine the tension that can exist between evolving external environmental influences and internal organizational influences on foreign entry attempts. Using data on the entries of 215 U.S. public firms made into 11 Central and Eastern European transition economies during the period of 1990–2003, we find that shifts in national institutional environments, from a socialist to a market economy, reduce the extent of challenges encountered to make a hierarchical entry, which leads to an increase in foreign hierarchical entry attempts but not necessarily to a decrease in relational entry attempts as institutional transformation. We find evidence of inertial influences as experienced entrants tend to follow their previous decisions when making subsequent entry attempts. Further, they are less responsive in their foreign entry strategies to the institutional transformation in a given host country than inexperienced firms. We also find that the experience gained from relational entries results in more hierarchical entry attempts, but hierarchical entry experience results in fewer relational entry attempts. Copyright © 2009 John Wiley & Sons, Ltd.     

Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities

We analyze the potential entry of a new product into a vertically differentiated market. Here the entry-deterrence strategies of the incumbent firm rely on “limit qualities.” The model assumes quality-dependent marginal production costs and considers sequential quality choices by an incumbent and an entrant. Entry-quality decisions and the entry-deterrence strategies are related to the fixed cost necessary for entry and to the degree of consumers’ taste for quality. We detail the conditions under which the incumbent increases its quality level to deter entry. Quality-dependent marginal production costs in the model entail the possibility of inferior-quality entry as well. Welfare is not necessarily improved when entry is encouraged rather than deterred.