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Brand Loyalty, Generic Entry and Price Competition in Pharmaceuticals in the Quarter Century after the 1984 Waxman-Hatch Legislation

Author

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  • Ernst Berndt
  • Murray Aitken

Abstract

We examine market share and price trends in the quarter century since the 1984 Waxman-Hatch legislation. The generic share of US retail prescriptions has grown from 18.6% in 1984 to 74.5% in 2009, with a notable acceleration in recent years. Whereas in 1994 the generic price index fell from 100 to 65 in the 24 months following initial generic entry, in 2009 the comparable price index was 28. For the prescription drugs most commonly used by beneficiaries in Medicare Part D, rather than increasing by 25-28% as has been reported by the American Association of Retired Persons (focusing entirely on brand prices), we find that once one incorporates substitution to lower priced generics following patent expiration, average price per prescription fell by 21.3% from 2006-09. Finally, we find that the weighted mean reduction in pharmaceutical daily treatment cost across nine therapeutic areas equaled 35.1% at 24 months post-generic entry.

Suggested Citation

  • Ernst Berndt & Murray Aitken, 2011. "Brand Loyalty, Generic Entry and Price Competition in Pharmaceuticals in the Quarter Century after the 1984 Waxman-Hatch Legislation," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 18(2), pages 177-201.
  • Handle: RePEc:taf:ijecbs:v:18:y:2011:i:2:p:177-201
    DOI: 10.1080/13571516.2011.584423
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    1. repec:aea:aejpol:v:9:y:2017:i:2:p:91-123 is not listed on IDEAS
    2. Puig-Junoy, Jaume & López-Valcárcel, Beatriz González, 2014. "Launch prices for new pharmaceuticals in the heavily regulated and subsidized Spanish market, 1995–2007," Health Policy, Elsevier, vol. 116(2), pages 170-181.
    3. González, Paula & Macho-Stadler, Inés & Pérez-Castrillo, David, 2016. "Private versus social incentives for pharmaceutical innovation," Journal of Health Economics, Elsevier, vol. 50(C), pages 286-297.
    4. Leemore Dafny & Christopher Ody & Matt Schmitt, 2017. "When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 91-123, May.
    5. Akematsu, Yuji & Arai, Koki, 2016. "Estimating the value of generic entry and intellectual property litigation in the pharmaceutical market," Japan and the World Economy, Elsevier, vol. 40(C), pages 16-20.
    6. Barry Bosworth & John Bieler & Michael Kleinrock & Eric Koepcke & Ernst R. Berndt, 2018. "An Evaluation of the CPI Indexes for Prescription Drugs," NBER Working Papers 24210, National Bureau of Economic Research, Inc.
    7. repec:bla:obuest:v:79:y:2017:i:6:p:969-996 is not listed on IDEAS
    8. repec:eee:jhecon:v:61:y:2018:i:c:p:1-12 is not listed on IDEAS
    9. repec:kap:revind:v:53:y:2018:i:1:d:10.1007_s11151-018-9627-y is not listed on IDEAS
    10. Arcidiacono, Peter & Ellickson, Paul B. & Landry, Peter & Ridley, David B., 2013. "Pharmaceutical followers," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 538-553.
    11. Neha Bairoliya & Pinar Karaca-Mandic & Jeffrey S. McCullough & Amil Petrin, 2017. "Consumer Learning and the Entry of Generic Pharmaceuticals," NBER Working Papers 23662, National Bureau of Economic Research, Inc.
    12. Henry Grabowski, 2011. "The Evolution of the Pharmaceutical Industry Over the Past 50 Years: A Personal Reflection," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 18(2), pages 161-176.

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