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Strategic behavior and entry deterrence by branded drug firms: the case of authorized generic drugs

Author

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  • Lu Yao

    (China Univeristy of Political Science and Law)

  • Mengde Liu

    (Beijing Institute of Technology)

Abstract

Pharmaceutical firms that market brand-name drugs lose substantial market share to generic manufacturers after patent expiration. As a response to the threat of generic competition, branded manufacturers pursue defensive strategies. One such strategy is the launch of authorized generic drugs. Authorized generic drugs are produced by branded manufacturers to compete against other generic drug entrants. Such competition may lower the expected profits of generic drug manufacturers and hence deter future generic drug entry. This paper models and empirically examines whether the introduction of authorized generic drugs changes the independent generic firms’ decisions on entering the market. We use an instrumental variable approach to evaluate the effect of authorized generic drugs on the responses of generic manufacturers. The results show that the entry of authorized generic drugs deters and delays the entry of generic drugs.

Suggested Citation

  • Lu Yao & Mengde Liu, 2025. "Strategic behavior and entry deterrence by branded drug firms: the case of authorized generic drugs," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 26(4), pages 561-575, June.
    • Handle: RePEc:spr:eujhec:v:26:y:2025:i:4:d:10.1007_s10198-024-01721-y
    DOI: 10.1007/s10198-024-01721-y
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    Keywords

    Generic drug; Pharmaceutical industry; Authorized generic drugs; Market competition strategy; Generic entry deterrence; Brand name drugs;
    All these keywords.

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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