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Pharmaceutical generics, vertical product differentiation and public policy

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  • Antonio Cabrales

Abstract

This paper studies oligopolistic competition in off-patent pharmaceutical markets using a vertical product differentiation model. This model can explain the observation that countries with stronger regulations have smaller generic market shares. It can also explain the differences in observed regulatory regimes. Stronger regulation may be due to a higher proportion of production that is done by foreign firms. Finally, a closely related model can account for the observed increase in prices by patent owners after entry of generic producers.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 662.

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Date of creation: Jan 2003
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Handle: RePEc:upf:upfgen:662

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Web page: http://www.econ.upf.edu/

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Keywords: Pharmaceutical industry; generics; vertical product differentiation;

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References

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  1. Gambardella, Alfonso & Orsenigo, Luigi & Pammolli, Fabio, 2000. "Global Competitiveness in Pharmaceuticals: A European Perspective," MPRA Paper 15965, University Library of Munich, Germany.
  2. Cabrales, Antonio & Garcia-Fontes, Walter & Motta, Massimo, 2000. "Risk dominance selects the leader: An experimental analysis," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 18(1), pages 137-162, January.
  3. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  4. Zweifel, Peter & Crivelli, Luca, 1996. "Price Regulation of Drugs: Lessons from Germany," Journal of Regulatory Economics, Springer, Springer, vol. 10(3), pages 257-73, November.
  5. Stéphane Jacobzone, 2000. "Pharmaceutical Policies in OECD Countries: Reconciling Social and Industrial Goals," OECD Labour Market and Social Policy Occasional Papers 40, OECD Publishing.
  6. Jorge Mestre Ferrándiz, 1999. "The impact of generic goods in the pharmaceutical industry," Health Economics, John Wiley & Sons, Ltd., vol. 8(7), pages 599-612.
  7. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
  8. Cabrales, Antonio & Motta, Massimo, 2001. "Country asymmetries, endogenous product choice and the timing of trade liberalization," European Economic Review, Elsevier, vol. 45(1), pages 87-107, January.
  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, vol. 43(2), pages 311-57, October.
  10. W. Duncan Reekie, 1997. "Cartels, Spontaneous Price Discrimination and International Pharmacy Retailing," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 4(3), pages 279-285.
  11. Scherer, F.M., 2000. "The pharmaceutical industry," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 25, pages 1297-1336 Elsevier.
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Citations

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Cited by:
  1. Javier Coronado & Sergi Jiménez-Martín & Pedro L. Marín, 2007. "Multimarket contact in pharmaceutical markets," Economics Working Papers 1033, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2007.
  2. Fernando Antoñanzas & Carmelo Juárez-Castelló & Roberto Rodríguez-Ibeas, 2011. "Innovation, loyalty and generic competition in pharmaceutical markets," SERIEs, Spanish Economic Association, vol. 2(1), pages 75-95, March.
  3. Konigbauer, Ingrid, 2007. "Advertising and generic market entry," Journal of Health Economics, Elsevier, vol. 26(2), pages 286-305, March.
  4. Kurt R Brekke & Michael Kuhn, . "Direct-to-Consumer Advertising in Pharmaceutical Markets," Discussion Papers 03/11, Department of Economics, University of York.
  5. Reisinger, Markus, 2004. "Vertical Product Differentiation, Market Entry, and Welfare," Discussion Papers in Economics 479, University of Munich, Department of Economics.
  6. Brekke, Kurt R. & Konigbauer, Ingrid & Straume, Odd Rune, 2007. "Reference pricing of pharmaceuticals," Journal of Health Economics, Elsevier, vol. 26(3), pages 613-642, May.
  7. Anna Merino, 2000. "The impact of the reference price system on the pharmaceutical market: A theoretical approach," Working Papers, Research Center on Health and Economics, Department of Economics and Business, Universitat Pompeu Fabra 524, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2003.
  8. Königbauer, Ingrid, 2006. "Dealing with Rising Health Care Costs: The Case of Pharmaceuticals," Munich Dissertations in Economics 5640, University of Munich, Department of Economics.
  9. Garci­a-Alonso, Mari­a D.C. & Garci­a-Mariñoso, Begoña, 2008. "The strategic interaction between firms and formulary committees: Effects on the prices of new drugs," Journal of Health Economics, Elsevier, vol. 27(2), pages 377-404, March.
  10. Kurt R. Brekke & Odd Rune Straume, 2008. "Pharmaceutical Patents: Incentives for R&D or Marketing?," CESifo Working Paper Series 2433, CESifo Group Munich.
  11. Birg, Laura, 2013. "Pharmaceutical regulation and health policy objectives," Center for European, Governance and Economic Development Research Discussion Papers 183, University of Goettingen, Department of Economics.

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