We empirically analyze the welfare effects of cross-firm bundling in the pharmaceutical
industry. Physicians often treat patients with" cocktail" regimens that combine two or more
drugs. Firms cannot price discriminate because each drug is produced by a different firm
and a physician creates the bundle in her office from the component drugs. We show that a
less competitive equilibrium arises with cocktail products because firms can internalize
partially the externality their pricing decisions impose on competitors. The incremental profits …

We empirically analyze the welfare effects of inter-firm bundling in the pharmaceutical
industry, also known as" cocktail" regimens. Firms often cannot price discriminate because
each drug is produced by a different firm and a physician creates a bundle in her office from
component drugs. We show that under this linear pricing a new cocktail regimen tends to
make the market less competitive by increasing the prices of all regimens that use the same
component drugs. We also show that a merger between the firms that have a cocktail …