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Advertising, Generic Competition and Price Regulation in Pharmaceutical Markets

Author

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  • Ingrid Königbauer

Abstract

The effect of price regulation on generic market entry and welfare in the presence of (persuasive) advertising is analysed. An incumbent has the possibility to invest in advertising targeted at the physician. Advertising creates vertical product differentiation between brand-name drugs and its generic substitutes. This differentiation creates the possibility to make positive profits for both firms. The presence of price regulation, however, reduces the anticipated generic profits. If price regulation is too strict, then the generic firm will refrain from market entry. Hence, the model confirms the empirical observation that generic market shares are lower in countries with strict price regulation. (JEL: I11, L13) Copyright 2006, Oxford University Press.

Suggested Citation

  • Ingrid Königbauer, 2006. "Advertising, Generic Competition and Price Regulation in Pharmaceutical Markets," CESifo Economic Studies, CESifo, vol. 52(3), pages 565-586, September.
  • Handle: RePEc:oup:cesifo:v:52:y:2006:i:3:p:565-586
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifl009
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    Cited by:

    1. Konigbauer, Ingrid, 2007. "Advertising and generic market entry," Journal of Health Economics, Elsevier, vol. 26(2), pages 286-305, March.
    2. Fernando Antoñanzas & Carmelo Juárez-Castelló & Roberto Rodríguez-Ibeas, 2011. "Innovation, loyalty and generic competition in pharmaceutical markets," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 2(1), pages 75-95, March.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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