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Competition between brand-name and generics - analysis on pricing of brand-name pharmaceutical


  • Ying Kong

    (Department of Economics, Atkinson Faculty of Liberal Arts and Professional Studies, York University, Toronto, Ont., Canada)


The objective of this paper is to provide two-stage game models explaining the 'Generic Competition Paradox' that demonstrates an increase of brand-name drug price in response to generic entry. Under the assumption that there are two groups of consumers who are segmented by their insurance status, high insurance coverage and low insurance coverage consumers, the models indicate that the decisive factor is the market share of the high insurance coverage consumer and the size of cross-substitute factor relative to certain characteristics of market demand. The paper analyses both the case of only true generic entry and the case of pseudo-generic and true generic entry. The models prove that a brand-name price will increase when both the market share of high insurance coverage consumer and the factor of cross-substitute are small. Also, the 'Generic Competition Paradox' more likely occurs in the market where less pseudo-generic products are produced. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Ying Kong, 2009. "Competition between brand-name and generics - analysis on pricing of brand-name pharmaceutical," Health Economics, John Wiley & Sons, Ltd., vol. 18(5), pages 591-606.
  • Handle: RePEc:wly:hlthec:v:18:y:2009:i:5:p:591-606 DOI: 10.1002/hec.1392

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    References listed on IDEAS

    1. Ying Kong & James R. Seldon, 2004. "Pseudo-Generic Products and Barriers to Entry in Pharmaceutical Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 25(1), pages 71-86, August.
    2. Judith K. Hellerstein, 1994. "The Demand for Post-Patent Prescription Pharmaceuticals," NBER Working Papers 4981, National Bureau of Economic Research, Inc.
    3. Aidan Hollis, 2003. "The Anti-Competitive Effects of Brand-Controlled "Pseudo- Generics" in the Canadian Pharmaceutical Market," Canadian Public Policy, University of Toronto Press, vol. 29(1), pages 21-31, March.
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    Cited by:

    1. Ivan Moreno-Torres, 2011. "Generic drugs in Spain: price competition vs. moral hazard," Working Papers XREAP2011-04, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.
    2. Kangasharju, Aki & Hokkanen Joni, Linnosmaa Ismo, Valtonen Hannu, 2012. "Generic substitution policy, prices and market structure: evidence from a quasi-experiment in Finland," Working Papers 35, VATT Institute for Economic Research.

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