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Competition between brand‐name and generics – analysis on pricing of brand‐name pharmaceutical

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  • Ying Kong

Abstract

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.

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  • 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, May.
    • 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

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    1. Judith K. Hellerstein, 1994. "The Demand for Post-Patent Prescription Pharmaceuticals," NBER Working Papers 4981, National Bureau of Economic Research, Inc.
    2. Scott Morton, Fiona M., 2000. "Barriers to entry, brand advertising, and generic entry in the US pharmaceutical industry," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1085-1104, October.
    3. Ying Kong, 2004. "The price premium of generic to brand-names and pharmaceutical price index," Applied Economics, Taylor & Francis Journals, vol. 36(7), pages 731-737.
    4. 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.
    5. 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. Choi, Yoonho & Kwan Choi, E., 2018. "Quality competition in north-south trade," International Journal of Production Economics, Elsevier, vol. 201(C), pages 216-224.
    2. 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.
    3. Hokkanen, Joni & Kangasharju, Aki & 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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