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Pharmaceutical Generics, Vertical Product Differentiation, and Public Policy

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  • Antonio Cabrales

Abstract

This paper studies oligopolistic competition in off-patent pharmaceutical markets using a vertical product differentiation model. This model can explain the observation that countries with stronger regulations have smaller generic market shares. It can also explain the differences in observed regulatory regimes. Stronger regulation may be due to a higher proportion of production that is done by foreign firms. Finally, a closely related model can account for the observed increase in prices by patent owners after entry of generic producers.

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File URL: http://research.barcelonagse.eu/tmp/working_papers/54.pdf
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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 54.

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Date of creation: Jan 2003
Date of revision:
Handle: RePEc:bge:wpaper:54

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Keywords: Pharmaceutical industry; generics; vertical product differentiation;

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References

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  1. Stéphane Jacobzone, 2000. "Pharmaceutical Policies in OECD Countries: Reconciling Social and Industrial Goals," OECD Labour Market and Social Policy Occasional Papers 40, OECD Publishing.
  2. Cabrales, Antonio & Motta, Massimo, 2001. "Country asymmetries, endogenous product choice and the timing of trade liberalization," European Economic Review, Elsevier, vol. 45(1), pages 87-107, January.
  3. Danzon, Patricia M & Chao, Li-Wei, 2000. "Does Regulation Drive out Competition in Pharmaceutical Markets?," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 311-57, October.
  4. Zweifel, Peter & Crivelli, Luca, 1996. "Price Regulation of Drugs: Lessons from Germany," Journal of Regulatory Economics, Springer, vol. 10(3), pages 257-73, November.
  5. Gambardella, Alfonso & Orsenigo, Luigi & Pammolli, Fabio, 2000. "Global Competitiveness in Pharmaceuticals: A European Perspective," MPRA Paper 15965, University Library of Munich, Germany.
  6. Cabrales, Antonio & Garcia-Fontes, Walter & Motta, Massimo, 2000. "Risk dominance selects the leader: An experimental analysis," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 137-162, January.
  7. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. 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.
  9. Scherer, F.M., 2000. "The pharmaceutical industry," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 25, pages 1297-1336 Elsevier.
  10. W. Duncan Reekie, 1997. "Cartels, Spontaneous Price Discrimination and International Pharmacy Retailing," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 4(3), pages 279-285.
  11. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
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Citations

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Cited by:
  1. García-Alonso, M. D. C. & Garcia-Marinoso, B., 2007. "The strategic interaction between firms and formulary committees: effects on the prices of new drugs," Working Papers 07/16, Department of Economics, City University London.
  2. Birg, Laura, 2013. "Pharmaceutical regulation and health policy objectives," Center for European, Governance and Economic Development Research Discussion Papers 183, University of Goettingen, Department of Economics.
  3. Reisinger, Markus, 2004. "Vertical Product Differentiation, Market Entry, and Welfare," Discussion Papers in Economics 479, University of Munich, Department of Economics.
  4. Javier Coronado & Sergi Jiménez-Martín & Pedro L. Marín, 2007. "Multimarket Contact in Pharmaceutical Markets," UFAE and IAE Working Papers 698.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC), revised 18 Jul 2007.
  5. Königbauer, Ingrid, 2006. "Dealing with Rising Health Care Costs: The Case of Pharmaceuticals," Munich Dissertations in Economics 5640, University of Munich, Department of Economics.
  6. 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.
  7. Brekke, Kurt R & Königbauer, Ingrid & Straume, Odd Rune, 2005. "Reference Pricing of Pharmaceuticals," Working Papers in Economics 19/05, University of Bergen, Department of Economics.
  8. Fernando Antoñanzas & Carmelo Juárez-Castelló & Roberto Rodríguez-Ibeas, 2011. "Innovation, loyalty and generic competition in pharmaceutical markets," SERIEs, Spanish Economic Association, vol. 2(1), pages 75-95, March.
  9. Kurt R. Brekke & Michael Kuhn, 2005. "Direct to Consumer Advertising in Pharmaceutical Markets," CESifo Working Paper Series 1493, CESifo Group Munich.
  10. Konigbauer, Ingrid, 2007. "Advertising and generic market entry," Journal of Health Economics, Elsevier, vol. 26(2), pages 286-305, March.
  11. Kurt R. Brekke & Odd Rune Straume, 2008. "Pharmaceutical Patents: Incentives for R&D or Marketing?," CESifo Working Paper Series 2433, CESifo Group Munich.

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