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Market Effects of Generic Entry: The Role of Physicians and of Non-Bioequivalent Competitors

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  • Gonzalez, Jorge
  • Sismeiro, Catarina
  • Dutta, Shantanu
  • Stern, Philip
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    Abstract

    Patent expiration represents a turning point for the brand losing patent protection as bioequivalent generic versions of the drug quickly enter the market at reduced prices. In this paper, we study how physician characteristics and their prescribing decisions impact the competition among molecules of a therapeutic class, once generic versions of one of these molecules enter the market. Specifically, we study the evolution of the Selective Serotonine Reuptake Inhibitors (SSRIs) after the introduction of generic versions of fluoxetine (brand name Prozac) in the United Kingdom (UK). Our results suggest that, to fully understand the market evolution after generic entry, public health officials need to consider the marketing activities of pharmaceutical companies and determine how (1) individual physicians prescribe all competing drugs, and (2) respond to drug prices and marketing actions. For example, we find that a group of physicians sensitive to detailing switch from fluoxetine to non-bioequivalent branded alternatives after patent expiration, as Prozac significantly reduces its marketing support. Consequently, the market share of fluoxetine decreases despite being available at significant price discount under generic form, and despite the increase of prescriptions by price-sensitive physicians. Hence, governments interested in assessing generics diffusion should consider the prescribing across all competitors, whether or not bioequivalent, and determine the size of physician segments sensitive to pharmaceutical marketing activity and prices.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3717.

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    Date of creation: Oct 2006
    Date of revision: May 2007
    Handle: RePEc:pra:mprapa:3717

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    1. Lundin, Douglas, 2000. "Moral hazard in physician prescription behavior," Journal of Health Economics, Elsevier, Elsevier, vol. 19(5), pages 639-662, September.
    2. Lexchin, Joel, 2004. "The effect of generic competition on the price of brand-name drugs," Health Policy, Elsevier, Elsevier, vol. 68(1), pages 47-54, April.
    3. Magazzini, Laura & Pammolli, Fabio & Riccaboni, Massimo, 2004. "Dynamic Competition in Pharmaceuticals: Patent Expiry, Generic Penetration, and Industry Structure," MPRA Paper, University Library of Munich, Germany 15968, University Library of Munich, Germany.
    4. Richard G. Frank & David S. Salkever, 1995. "Generic Entry and the Pricing of Pharmaceuticals," NBER Working Papers, National Bureau of Economic Research, Inc 5306, National Bureau of Economic Research, Inc.
    5. Hurwitz, Mark A & Caves, Richard E, 1988. "Persuasion or Information? Promotion and the Shares of Brand Name and Generic Pharmaceuticals," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 31(2), pages 299-320, October.
    6. Coscelli, Andrea, 2000. "The Importance of Doctors' and Patients' Preferences in the Prescription Decision," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 48(3), pages 349-69, September.
    7. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 6(1), pages 75-90, 03.
    8. Scott Morton, Fiona M., 2000. "Barriers to entry, brand advertising, and generic entry in the US pharmaceutical industry," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 18(7), pages 1085-1104, October.
    9. Danzon, Patricia M & Chao, Li-Wei, 2000. "Does Regulation Drive out Competition in Pharmaceutical Markets?," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 43(2), pages 311-57, October.
    10. Jorge Mestre Ferrándiz, 1999. "The impact of generic goods in the pharmaceutical industry," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(7), pages 599-612.
    11. David Reiffen & Michael R. Ward, 2005. "Generic Drug Industry Dynamics," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 87(1), pages 37-49, February.
    12. Fiona M. Scott Morton, 2002. "Horizontal Integration Between Brand and Generic Firms in the Pharmaceutical Industry," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 11(1), pages 135-168, 03.
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