Pharmaceuticals and market definition: a cautionary tale

Abstract

ABSTRACT There is no simple prescription for defining the relevant product market for pharmaceuticals. As price is usually the key variable, the price inelastic demand for pharmaceuticals complicates the market definition process. It unsurprising then that when, as in relation to pharmaceuticals, demand is relatively price inelastic the process of defining the product dimension of a market is more complex. In relation to pharmaceuticals, the question is therefore whether a change in some other variable would cause substitution and so constrain decision-making and, if so, how to best identify such constraints. By reference to approaches adopted in several key cases, this article considers alternative approaches that can be used to identify the product dimension of pharmaceutical markets, including the use of natural events/experiments, the use of consumption data as well as qualitative indicators. The article concludes with a suggested alternative approach based on functionality, response to product quality variation and context.