Generic entry, price competition, and market segmentation in the prescription drug market
AbstractThis 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 InfoPaper provided by University of Miami, Department of Economics in its series Working Papers with number 2010-7.
Length: 19 pages
Date of creation: Aug 2007
Date of revision:
Publication status: Published
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Generic entry; Price competition; Prescription drugs; Market segmentation; One-way error component model; EC2SLS;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
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- 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.
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