Entry Decisions in the Generic Pharmaceutical Industry
AbstractIn this paper I use data on all generic drug approvals granted from 1984- 1994 to examine whether heterogeneity among potential generic entrants can be used to predict which firms will choose to enter a particular market. The findings suggest that a firm's portfolio characteristics, namely, its previous experience with a drug or therapy reduces the cost of preparing an ANDA and increases the probability of entry. A subsidiary's parent's experience is not generally significant in predicting entry of the subsidiary. Firms also prefer entering markets that are similar, in terms of revenue and sales to hospitals, to markets already in their portfolios. On both scientific and marketing dimensions evidence shows that firms are specializing. I explore several different ways of constructing the set of potential entrants and find the results are not affected by methodological variation. Standard IO theory suggests that profits per entrant will decline in the number of entrants. Previous research has found that generic prices depend on the number of generic entrants, and the results presented here show that the total number of entrants increases with the size of the market (revenue). These findings imply that generic firms face a negative competition externality which makes their expectations about who else might be planning to enter any given market important in the entry decision. The limited evidence on entrant beliefs supports this conjecture as do several features of a regulatory upheaval when firms began entering different markets than they had in the past.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6190.
Date of creation: Sep 1997
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bresnahan, Timothy F. & Reiss, Peter C., 1991. "Empirical models of discrete games," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 57-81.
- Joseph Farrell, 1987. "Cheap Talk, Coordination, and Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 34-39, Spring.
- Bolton, P. & Ferrel, J., 1988.
"Decentralization, Deplication And Delay,"
e-88-49, Hoover Institution, Stanford University.
- Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
- Bresnahan, Timothy F & Reiss, Peter C, 1990. "Entry in Monopoly Markets," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 531-53, October.
- Bresnahan, Timothy F & Reiss, Peter C, 1991.
"Entry and Competition in Concentrated Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 99(5), pages 977-1009, October.
- Harrington, Joseph Jr., 1989. "Collusion and predation under (almost) free entry," International Journal of Industrial Organization, Elsevier, vol. 7(3), pages 381-401.
- Kirman, William I. & Masson, Robert T., 1986. "Capacity signals and entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 4(1), pages 25-42, March.
- Timothy F. Bresnahan & Peter C. Reiss, 1987. "Do Entry Conditions Vary across Markets?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 833-882.
- Andrew Ching, 2000. "Dynamic Equilibrium in the US Prescription Drug Market After Patent Expiration," Econometric Society World Congress 2000 Contributed Papers 1242, Econometric Society.
- Erik Canton & Ed Westerhout, 1999. "A model for the Dutch pharmaceutical market," Health Economics, John Wiley & Sons, Ltd., vol. 8(5), pages 391-402.
- Gianni Amisano & Maria Letizia Giorgetti, 2005. "Entry in Pharmaceutical submarkets: A Bayesian Panel Probit Approach," Working Papers ubs0511, University of Brescia, Department of Economics.
- Laura Magazzini & Fabio Pammolli & Massimo Riccaboni, 2004. "Dynamic competition in pharmaceuticals," The European Journal of Health Economics, Springer, vol. 5(2), pages 175-182, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.