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Generic entry, price competition, and market segmentation in the prescription drug market


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  • Tracy L. Regan

    (Department of Economics, University of Miami)

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    This 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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    File Function: First version, 2009
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    Bibliographic Info

    Paper provided by University of Miami, Department of Economics in its series Working Papers with number 2010-7.

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    Length: 19 pages
    Date of creation: Aug 2007
    Date of revision:
    Publication status: Published
    Handle: RePEc:mia:wpaper:2010-7

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    Related research

    Keywords: Generic entry; Price competition; Prescription drugs; Market segmentation; One-way error component model; EC2SLS;

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    Cited by:
    1. Joan Costa-i-Font & Nebibe Varol & Alistair McGuire, 2011. "Does pharmaceutical price regulation affect the adoption of generic competition?: evidence from the OECD, 1999-2008," LSE Research Online Documents on Economics 37537, London School of Economics and Political Science, LSE Library.


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