Entry into New Pharmaceutical Submarkets: The Role of Submarket Concentration

Abstract

Using a reduced form binary econometric model, we analyze the determinants of pharmaceutical companies entry decisions into new submarkets. Our sample includes data for pharmaceutical companies over the period 1987-1998 for seven countries. Estimation is done both at the aggregate level and at a country-specific level. By using a Bayesian panel probit model we deal with non-strictly exogenous regressors, which can be correlated with unit specific effects. We accommodate possible state dependence by including the lagged dependent variable among regressors. To summarize our results, entry probability is negatively correlated with the level of submarket concentration. There is scant evidence of entry persistence into new submarkets, as measured by the lagged dependent variable.

Keywords: Entry, Diversification, Bayesian Inference, Panel data, Probit model, random effects

JEL Classification: L11, L65, C11, C23, C25