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Generic entry, price competition, and market segmentation in the prescription drug market

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  • Regan, Tracy L.

Abstract

This paper studies the effects of generic entry on post-patent price competition for 18 prescription drugs recently exposed to competition. An independent, validating test of the "generic competition paradox" is conducted using a newly created data set. Each generic entrant is associated with an average 1% increase in the branded price. The one-way error component model accounts for intermolecular competition, market segmentation, and endogeneity of entry and finds branded prices increasing by 2%. Alternative definitions of entry suggest that price competition is confined to the generic market. The unique payer-type feature of the data offers empirical evidence supporting market segmentation.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 4 (July)
Pages: 930-948

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Handle: RePEc:eee:indorg:v:26:y:2008:i:4:p:930-948

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Web page: http://www.elsevier.com/locate/inca/505551

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Citations

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Cited by:
  1. Aki Kangasharju & Joni Hokkanen & Ismo Linnosmaa & Hannu Valtonen, 2012. "Generic substitution policy, prices and market structure: evidence from a quasi-experiment in Finland," Working Papers 35, Government Institute for Economic Research Finland (VATT).
  2. Nebibe Varol & Joan Costa-i-Font & Alistair McGuire, 2011. "Does Pharmaceutical Price Regulation Affect the Adoption of Generic Competition? Evidence from the OECD, 1999-2008," CESifo Working Paper Series 3441, CESifo Group Munich.
  3. Ulrich Kaiser & Susan J. Méndez & Thomas Rønde & Hannes Ullrich, 2013. " Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark," Working Papers 330, University of Zurich, Department of Business Administration (IBW).
  4. Panattoni, Laura E., 2011. "The effect of Paragraph IV decisions and generic entry before patent expiration on brand pharmaceutical firms," Journal of Health Economics, Elsevier, vol. 30(1), pages 126-145, January.
  5. Roger Feldman & Félix Lobo, 2013. "Competition in prescription drug markets: the roles of trademarks, advertising, and generic names," The European Journal of Health Economics, Springer, vol. 14(4), pages 667-675, August.
  6. Toshiaki Iizuka, 2012. "Physician Agency and Adoption of Generic Pharmaceuticals," American Economic Review, American Economic Association, vol. 102(6), pages 2826-58, October.
  7. Dag Dalen & Kari Furu & Marilena Locatelli & Steinar Strøm, 2011. "Generic substitution: micro evidence from register data in Norway," The European Journal of Health Economics, Springer, vol. 12(1), pages 49-59, February.
  8. Furu, Kari & Dalen, Dag Morten & Locatelli, Marilena & Strøm, Steinar, 2008. "Generic Substitution," Memorandum 11/2008, Oslo University, Department of Economics.
  9. Murray L. Aitken & Ernst R. Berndt & Barry Bosworth & Iain Cockburn & Richard Frank & Michael Kleinrock & Bradley Shapiro, 2013. "The Regulation of Prescription Drug Competition and Market Responses: Patterns in Prices and Sales following Loss of Exclusivity," NBER Chapters, in: Measuring and Modeling Health Care Costs National Bureau of Economic Research, Inc.
  10. Glenn Ellison & Sara Fisher Ellison, 2007. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," NBER Working Papers 13069, National Bureau of Economic Research, Inc.
  11. Patricia M. Danzon & Michael F. Furukawa, 2011. "Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets," NBER Working Papers 17226, National Bureau of Economic Research, Inc.
  12. Duflos, Gautier & Lichtenberg, Frank R., 2012. "Does competition stimulate drug utilization? The impact of changes in market structure on US drug prices, marketing and utilization," International Review of Law and Economics, Elsevier, vol. 32(1), pages 95-109.
  13. Peter Arcidiacono & Paul B. Ellickson & Peter Landry & David B. Ridley, 2013. "Pharmaceutical Followers," NBER Working Papers 19522, National Bureau of Economic Research, Inc.
  14. de Frutos, Maria-Angeles & Ornaghi, Carmine & Siotis, Georges, 2013. "Competition in the pharmaceutical industry: How do quality differences shape advertising strategies?," Journal of Health Economics, Elsevier, vol. 32(1), pages 268-285.

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