Micael Castanheira, Carmine Ornaghi, Georges Siotis, 01 March 2017

Conventional wisdom holds that increased competition improves market outcomes. This column argues that the link from competitiveness to allocative efficiency is weaker than this wisdom would suggest. Using evidence of generic substitutes of previously patent-protected drugs, it shows that firms can use non-price instruments which affect – or even reverse – the way competitive shocks alter market outcomes, with significant welfare implications.

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