Dynamic Competition in Pharmaceuticals: Patent Expiry, Generic Penetration, and Industry Structure
AbstractThis paper investigates patterns of industrial dynamics and competition in the pharmaceutical industry, with particular reference to the consequences of patent expiry in different countries. We focus on the competition at the level of single chemical entities, distinguishing between original brands and generic products. Quarterly data, spanning from July 1987 to December 1998, on sales of pharmaceutical products in four countries (USA, UK, Germany, and France) constitute the basis of our analysis. All the products containing major molecules whose patent expiration date lies between 1986 and 1996 are included in our sample. We show how diffusion of generics is linked to the characteristics of the market and investigate how price dynamics of original products are affected by generic competition. Our empirical investigation shows that the dynamics of drug prices and the competition by generic drugs vary significantly across countries. This heterogeneity notwithstanding, a clear distinction seems to emerge. On the one hand, systems that rely on market-based competition in pharmaceuticals promote a clear distinction between firms that act as innovators and firms that act as imitators after patent expiry. Here, original products enjoy premium prices and exclusivity profits under patent protection, and face fierce price competition after patent expiry. On the other hand, in systems that rely on administered prices, penetration by generic drugs tends to be rather limited. Its descriptive and preliminary nature notwithstanding, our analysis seems to have relevant implications at different levels of generality, especially for Europe.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 15968.
Date of creation: 10 Feb 2004
Date of revision:
Publication status: Published in The European Journal of Health Economics 2.5(2004): pp. 175-182
Pharmaceuticals; Patent expiration; Off-patent competition;
Find related papers by JEL classification:
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property Rights
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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