Does competition stimulate drug utilization? The impact of changes in market structure on US drug prices, marketing and utilization
AbstractMicroeconomic theory implies that the demand for prescription drugs should be inversely related to drug prices and directly related to marketing expenditure. Changes in market structure due to patent expiration or other factors is likely to reduce both the average price of a drug and marketing expenditure, so the effect of increased competition on total utilization of a drug is theoretically indeterminate. We use longitudinal, molecule-level data on virtually all prescription drugs sold during the period 2000–2004 to analyze the impact of changes in market structure (primarily resulting from patent expiration) on U.S. drug prices, marketing, and utilization. Price and marketing expenditure both decline by about 50–60% in the years immediately following generic entry, but the number of prescriptions remains essentially constant during those years. The two effects of increased competition on utilization – positive (via price), and negative (via marketing) – almost exactly offset one another, so the net effect of patent expiration on drug utilization is zero.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Review of Law and Economics.
Volume (Year): 32 (2012)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/irle
Pharmaceutical; Competition; Patent; Marketing; Generic drugs; Drug prices;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Guido Imbens & Thomas Lemieux, 2007.
"Regression Discontinuity Designs: A Guide to Practice,"
NBER Working Papers
13039, National Bureau of Economic Research, Inc.
- Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
- Guido Imbens & Thomas Lemieux, 2007. "Regression Discontinuity Designs: A Guide to Practice," NBER Technical Working Papers 0337, National Bureau of Economic Research, Inc.
- Andrew T. Ching, 2010.
"A Dynamic Oligopoly Structural Model For The Prescription Drug Market After Patent Expiration,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 1175-1207, November.
- Andrew Ching, 2004. "A Dynamic Oligopoly Structural Model for the Prescription Drug Market After Patent Expiration," Econometric Society 2004 Far Eastern Meetings 735, Econometric Society.
- Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 75-90, 03.
- Ching, Andrew T., 2010.
"Consumer learning and heterogeneity: Dynamics of demand for prescription drugs after patent expiration,"
International Journal of Industrial Organization,
Elsevier, vol. 28(6), pages 619-638, November.
- Ching, Andrew, 2008. "Consumer Learning and Heterogeneity: Dynamics of Demand for Prescription Drugs after Patent Expiration," MPRA Paper 7265, University Library of Munich, Germany.
- Tracy L. Regan, 2007.
"Generic entry, price competition, and market segmentation in the prescription drug market,"
2010-7, University of Miami, Department of Economics.
- Regan, Tracy L., 2008. "Generic entry, price competition, and market segmentation in the prescription drug market," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 930-948, July.
- Darius Lakdawalla & Tomas Philipson & Y. Richard Wang, 2006. "Intellectual Property and Marketing," NBER Working Papers 12577, National Bureau of Economic Research, Inc.
- Grabowski, Henry G & Vernon, John M, 1992. "Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 331-50, October.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
- 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.
- Glenn Ellison & Sara Fisher Ellison, 2011. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 1-36, February.
- Meir Statman, 1981. "The effect of patent expiration on the market position of drugs," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 2(2), pages 61-66, 06.
- Michael Vardanyan & Victor J. Tremblay, 2006. "The measurement of marketing efficiency in the presence of spillovers: theory and evidence," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(5), pages 319-331.
- Richard G. Frank & David S. Salkever, 1995. "Generic Entry and the Pricing of Pharmaceuticals," NBER Working Papers 5306, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.