Simon Graduate School of Business
University of Rochester
Rochester, NY 14627-0100
Institutional Affiliation: University of Rochester
NBER Working Papers and Publications
|August 2010||Bundling Among Rivals: A Case of Pharmaceutical Cocktails|
with Claudio Lucarelli, Sean Nicholson: w16321
We empirically analyze the welfare effects of cross-firm bundling in the pharmaceutical industry. Physicians often treat patients with "cocktail" regimens that combine two or more drugs. Firms cannot price discriminate because each drug is produced by a different firm and a physician creates the bundle in her office from the component drugs. We show that a less competitive equilibrium arises with cocktail products because firms can internalize partially the externality their pricing decisions impose on competitors. The incremental profits from creating a bundle are sometimes as large as the incremental profits from a merger of the same two firms.