The relative impact of actual and potential rivalry on firm profitability in the pharmaceutical industry

This paper estimates the effects of actual and potential rivalry on profitability of firms in the U.S. pharmaceutical industry during the 20-year period 1963–82. The results show that during the 1960s actual rivalry among the sampled firms did not materially affect firm profitability, but that during the 1970s competition among incumbents had an increasingly adverse effect on their profitability. The results also show that potential competition significantly reduced drug firms’ profitability during the entire 20-year period.