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Entry Decisions in the Generic Pharmaceutical Industry

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  • Fiona M. Scott Morton

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    (School of Management)

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    Abstract

    Data on all generic drug entries in the period 1984-1994 are used to estimate which markets heterogeneous potential entrants will decide to enter. I find that organizational experience predicts entry. Firms tend to enter markets with supply and demand characteristics similar to the firm's existing drugs. Larger revenue markets, markets with more hospital sales, and products that treat chronic conditions attract more entry. The simultaneous nature of entry leads to an additional interpretation: specialization is profitable because of the severe risk to profits when a market is "overentered." However, I am unable to make any conclusions about the efficiency of entry decisions.

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    Bibliographic Info

    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm119.

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    Date of creation: 16 Jun 1999
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    Handle: RePEc:ysm:somwrk:ysm119

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    Web page: http://icf.som.yale.edu/
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    Cited by:
    1. Nebibe Varol & Joan Costa-i-Font & Alistair McGuire, 2011. "Explaining Early Adoption on New Medicines: Regulation, Innovation and Scale," CESifo Working Paper Series 3459, CESifo Group Munich.
    2. Marisa Miraldo, 2007. "Reference Pricing Versus Co-Payment in the Pharmaceutical Industry: Firm's Pricing Strategies," Working Papers 027cherp, Centre for Health Economics, University of York.
    3. James W. Hughes & Michael J. Moore & Edward A. Snyder, 2002. ""Napsterizing" Pharmaceuticals: Access, Innovation, and Consumer Welfare," NBER Working Papers 9229, National Bureau of Economic Research, Inc.
    4. Niklas Rudholm, 2003. "Competition and substitutability in the Swedish pharmaceuticals market," Applied Economics, Taylor & Francis Journals, vol. 35(14), pages 1609-1617.
    5. Daunfeldt, Sven-Olov & Rudholm, Niklas, 2006. "Revenues as a Proxy for Profits: A Cautionary Note," HUI Working Papers 5, HUI Research.
    6. Patricia M. Danzon & Eric L. Keuffel, 2013. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484 National Bureau of Economic Research, Inc.
    7. Alka Chadha & Åke Blomqvist, 2005. "Patent Races, “Me-Too” Drugs, and Generics: A Developing-World Perspective," Departmental Working Papers wp0513, National University of Singapore, Department of Economics.
    8. Jean Marie Abraham & Martin Gaynor & William B Vogt, 2003. "Entry and Competition in Local Hospital Markets," The Centre for Market and Public Organisation 03/088, Department of Economics, University of Bristol, UK.
    9. Appelt, Silvia, 2010. "Authorized Generic Entry prior to Patent Expiry: Reassessing Incentives for Independent Generic Entry," Discussion Papers in Economics 11476, University of Munich, Department of Economics.
    10. Joan Costa-i-Font & Nebibe Varol & Alistair McGuire, 2011. "Does pharmaceutical price regulation affect the adoption of generic competition?: evidence from the OECD, 1999-2008," LSE Research Online Documents on Economics 37537, London School of Economics and Political Science, LSE Library.
    11. Felici Roberto & Pagnini Marcello, 2005. "Distance, bank heterogeneity and entry in local banking markets," Temi di discussione (Economic working papers) 557, Bank of Italy, Economic Research and International Relations Area.
    12. S. Bhaduri & H. Worch, 2008. "Past Experience, Cognitive Frames, and Entrepreneurship: Some Econometric Evidence from the Indian Pharmaceutical Industry," Papers on Economics and Evolution 2008-04, Philipps University Marburg, Department of Geography.
    13. Nikas Rudholm, 2001. "Entry and the Number of Firms in the Swedish Pharmaceuticals Market," Review of Industrial Organization, Springer, vol. 19(3), pages 351-364, November.
    14. Patricia M. Danzon & Andrew W. Mulcahy & Adrian K. Towse, 2011. "Pharmaceutical Pricing in Emerging Markets: Effects of Income, Competition and Procurement," NBER Working Papers 17174, National Bureau of Economic Research, Inc.
    15. Yi-Wen Tsai & Yu-Wen Wen & Weng-Foung Huang & Ken Kuo & Pei-Fen Chen & Hsin-Wei Shih & Yue-Chune Lee, 2010. "Pharmaceutical penetration of new drug and pharmaceutical market structure in Taiwan: hospital-level prescription of thiazolidinediones for diabetes," The European Journal of Health Economics, Springer, vol. 11(3), pages 279-290, June.
    16. Iván Moreno-Torres & Jaume Puig-Junoy & Joan-Ramon Borrell, 2009. "Generic Entry into the Regulated Spanish Pharmaceutical Market," Review of Industrial Organization, Springer, vol. 34(4), pages 373-388, June.
    17. Patricia M. Danzon & Michael F. Furukawa, 2011. "Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets," NBER Working Papers 17226, National Bureau of Economic Research, Inc.
    18. Hellström, Jörgen & Rudholm, Niklas, 2003. "Uncertainty in the Generic Versus Brand Name Prescription Decision," UmeÃ¥ Economic Studies 602, Umeå University, Department of Economics.

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