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The impact of generic goods in the pharmaceutical industry

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  • Jorge Mestre Ferrándiz

Abstract

This paper studies the effects of generic drugs in the pharmaceutical industry. Two firms produce two branded goods, with a different active ingredient, and the patent for one of them has expired, so that a generic alternative is in the market. This paper focuses on the case where the branded goods are perfect substitutes and where there exists a degree of differentiation between the branded and the generic goods. The study looks at whether the firm producing the branded good whose patent has expired has incentives to produce its own generic alternative too. For this purpose, the scenario where the firm producing the branded good also produces the generic drug is compared with the situation where the generic good is produced by a third firm. It is found that the firm producing the branded good has incentives to produce its generic alternative, owing to a market segmentation effect. This induces an increase in the price of the branded good produced by this firm, which in turn implies a welfare reduction. Copyright © 1999 John Wiley & Sons, Ltd.

Suggested Citation

  • Jorge Mestre Ferrándiz, 1999. "The impact of generic goods in the pharmaceutical industry," Health Economics, John Wiley & Sons, Ltd., vol. 8(7), pages 599-612, November.
    • Handle: RePEc:wly:hlthec:v:8:y:1999:i:7:p:599-612
    DOI: 10.1002/(SICI)1099-1050(199911)8:7<599::AID-HEC479>3.0.CO;2-K
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    References listed on IDEAS

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    1. 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, March.
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    1. repec:dau:papers:123456789/5987 is not listed on IDEAS
    2. Antonio Cabrales, 2003. "Pharmaceutical generics, vertical product differentiation and public policy," Economics Working Papers 662, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2011. "External referencing and pharmaceutical price negotiation," Health Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 737-756, June.
    4. Mikael Linden, 2017. "Price variability, generic substitution, market size and multimarket contacts in the Finnish beta blocker market," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(2), pages 161-174, June.
    5. Jorge Mestre-Ferrandiz, 2000. "Reference Prices: The Spanish Way," UFAE and IAE Working Papers 481.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    6. Aidan Hollis, 2003. "The Anti-Competitive Effects of Brand-Controlled "Pseudo- Generics" in the Canadian Pharmaceutical Market," Canadian Public Policy, University of Toronto Press, vol. 29(1), pages 21-31, March.
    7. Anna Merino, 2000. "The impact of the reference price system on the pharmaceutical market: A theoretical approach," Economics Working Papers 524, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2003.
    8. Lee Branstetter & Chirantan Chatterjee & Matthew J. Higgins, 2016. "Regulation and welfare: evidence from paragraph IV generic entry in the pharmaceutical industry," RAND Journal of Economics, RAND Corporation, vol. 47(4), pages 857-890, November.
    9. Gonzalez, Jorge & Sismeiro, Catarina & Dutta, Shantanu & Stern, Philip, 2006. "Market Effects of Generic Entry: The Role of Physicians and of Non-Bioequivalent Competitors," MPRA Paper 3717, University Library of Munich, Germany, revised May 2007.
    10. Iván Moreno-Torres & Jaume Puig-Junoy & Joan-Ramon Borrell, 2009. "Generic Entry into the Regulated Spanish Pharmaceutical Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(4), pages 373-388, June.
    11. Aidan Hollis, 2002. "The importance of being first: evidence from Canadian generic pharmaceuticals," Health Economics, John Wiley & Sons, Ltd., vol. 11(8), pages 723-734, December.
    12. Laurent Granier & Sébastien Trinquard, 2011. "Predation in Off-Patent Drug Markets," Post-Print hal-00687806, HAL.
    13. Anna Merino, 2000. "The impact of the reference price system on the pharmaceutical market: A theoretical approach," Working Papers, Research Center on Health and Economics 524, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2003.

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