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Entry in the ADHD drugs market: Welfare impact of generics and me-toos

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  • Farasat A.S. Bokhari

    ()
    (Department of Economics, Florida State University)

  • Gary M. Fournier

    ()
    (Department of Economics, Florida State University)

Abstract

Recent years have seen the growing popularity of drugs designed to treat attention deficit hyperactivity disorder (ADHD), and the number of patients, scripts, and revenues has been steadily increasing. By the mid-1990s there were already several branded drugs marketed for this disorder, as well as numerous generic formulations. With the expansion of the market in the late 1990s and early 2000s, new formulations (the so called `me-too' drugs) entered and caused dramatic changes in the distribution of market shares among available drugs. Using detailed sales data on psychostimulant drugs used to treat ADHD, we are able to identify and measure substitution patterns across a range of drugs. We find that the demand for ADHD drugs is fairly elastic and there are significant substitution possibilities among these drugs. Using estimates from demand parameters, we show that the first-time introduction of a generic drug can have large welfare gains due to the expansion of the market to price sensitive consumers. Additionally, the welfare gains due to the introduction of me-too drugs vary by the novelty of the drug, and for significantly new varieties can be larger than those of the introduction of a generic. Our results bear policy implications for both the speed with which new drugs are approved for marketing as well as for actions among pharmaceutical firms that may delay the entry of a generic drug.

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File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401546
File Function: First version, 2009-05
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Bibliographic Info

Paper provided by Department of Economics, Florida State University in its series Working Papers with number wp2009_05_01.

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Length: 43 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:fsu:wpaper:wp2009_05_01

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Keywords: Differentiated products demand; multistage budgeting; AIDS model; psychostimulant drugs; new introductions; welfare analysis;

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Cited by:
  1. Duso, T.; & Herr, A.; & Suppliet, M, 2014. "The Welfare Impact of Parallel Imports: A Structural Approach Applied to the German Market for Oral Anti-diabetics," Health, Econometrics and Data Group (HEDG) Working Papers, HEDG, c/o Department of Economics, University of York 14/09, HEDG, c/o Department of Economics, University of York.
  2. Arcidiacono, Peter & Ellickson, Paul B. & Landry, Peter & Ridley, David B., 2013. "Pharmaceutical followers," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 538-553.
  3. Lee G. Branstetter & Chirantan Chatterjee & Matthew Higgins, 2011. "Regulation and Welfare: Evidence from Paragraph IV Generic Entry in the Pharmaceutical Industry," NBER Working Papers 17188, National Bureau of Economic Research, Inc.

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