Entry deterrence and antibiotic conservation under post-entry Bertrand competition

TL;DR

This paper examines how an incumbent antibiotic monopolist strategically responds to potential post-entry competition, finding that price competition encourages conservation and strategic deterrence is optimal regardless of cross-resistance.

Contribution

It introduces a two-period model analyzing antibiotic competition, highlighting the strategic role of price competition in antibiotic conservation under post-entry Bertrand rivalry.

Findings

Price competition leads to stronger conservation incentives.

Strategic deterrence is optimal regardless of cross-resistance.

Post-entry Bertrand competition results in a winner-take-all outcome.

Abstract

We analyze how an incumbent antibiotic monopolist responds to the threat of post-entry Bertrand competition by a vertically differentiated rival. In a two-period model where current production drives future resistance, Bertrand competition leads to a winner-take-all outcome. We find that strategic deterrence is optimal regardless of bacterial cross-resistance to prospective rival drugs. In contrast with post-entry Cournot competition, anticipated price competition provides the incumbent with a stronger strategic incentive for conservation.