Entry deterrence and antibiotic conservation under post-entry Bertrand competition

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.