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What is the price of pay-to-delay deals?

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  • Farasat A.S. Bokhari

    (Centre for Competition Policy and School of Economics, University of East Anglia)

Abstract

When a branded drug manufacturer makes a payment to a potential entrant to delay generic entry it raises anticompetitive concerns. In this paper I highlight one such deal in a subsegment of drugs used to treat attention deficit hyperactivity disorder (ADHD) - mixed amphetamine salts (MAS) - and compute market equilibrium prices under three counterfactuals. In the first case, equilibrium prices are computed if all MAS drugs were produced by a single profit maximizing firm, while in the latter two counterfactuals, I compute equilibrium prices when either an immediate release generic or an extended release branded drug are not available in the market. The simulations show that the average percentage increase in drug prices is 4-4.5 times larger in the latter two cases (when a drug is not available in the market) compared to a simple joint profit maximization of the same products. In this respect, the challenges by the Federal Trade Commission to the so called, `pay-to-delay' deals and the recent legislations introduced into the Congress to ban such deals are justified.

Suggested Citation

  • Farasat A.S. Bokhari, 2013. "What is the price of pay-to-delay deals?," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2013-01, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:ueaccp:2013_01
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    References listed on IDEAS

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    1. Sara Ellison Fisher & Iain Cockburn & Zvi Griliches & Jerry Hausman, 1997. "Characteristics of Demand for Pharmaceutical Products: An Examination of Four Cephalosporins," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 426-446, Autumn.
    2. Jeremy Bulow, 2004. "The Gaming of Pharmaceutical Patents," NBER Chapters, in: Innovation Policy and the Economy, Volume 4, pages 145-187, National Bureau of Economic Research, Inc.
    3. Nevo, Aviv, 1998. "Identification of the oligopoly solution concept in a differentiated-products industry," Economics Letters, Elsevier, vol. 59(3), pages 391-395, June.
    4. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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    Cited by:

    1. Montez, João & Marxen, Annabelle, 2020. "Licensing at the patent cliff and market entry," CEPR Discussion Papers 14276, C.E.P.R. Discussion Papers.
    2. Eric Helland & Seth A. Seabury, 2016. "Are Settlements in Patent Litigation Collusive? Evidence from Paragraph IV Challenges," NBER Working Papers 22194, National Bureau of Economic Research, Inc.
    3. Atanu Saha & Yong Xu, 2023. "Estimating Brand Drugs’ Payoff from Pay-for-Delay Deals," Journal of Industry, Competition and Trade, Springer, vol. 23(1), pages 81-99, June.

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    More about this item

    Keywords

    pay-to-delay; reverse payment; price simulations; ADHD drugs;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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