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Entry in the ADHD drugs market: Welfare impact of generics and me-toos

Author

Listed:
  • Farasat A.S. Bokhari

    (Department of Economics, Florida State University)

  • Gary M. Fournier

    (Department of Economics, Florida State University)

Abstract

Recent years have seen the growing popularity of drugs designed to treat attention deficit hyperactivity disorder (ADHD), and the number of patients, scripts, and revenues has been steadily increasing. By the mid-1990s there were already several branded drugs marketed for this disorder, as well as numerous generic formulations. With the expansion of the market in the late 1990s and early 2000s, new formulations (the so called `me-too' drugs) entered and caused dramatic changes in the distribution of market shares among available drugs. Using detailed sales data on psychostimulant drugs used to treat ADHD, we are able to identify and measure substitution patterns across a range of drugs. We find that the demand for ADHD drugs is fairly elastic and there are significant substitution possibilities among these drugs. Using estimates from demand parameters, we show that the first-time introduction of a generic drug can have large welfare gains due to the expansion of the market to price sensitive consumers. Additionally, the welfare gains due to the introduction of me-too drugs vary by the novelty of the drug, and for significantly new varieties can be larger than those of the introduction of a generic. Our results bear policy implications for both the speed with which new drugs are approved for marketing as well as for actions among pharmaceutical firms that may delay the entry of a generic drug.

Suggested Citation

  • Farasat A.S. Bokhari & Gary M. Fournier, 2009. "Entry in the ADHD drugs market: Welfare impact of generics and me-toos," Working Papers wp2009_05_01, Department of Economics, Florida State University.
    • Handle: RePEc:fsu:wpaper:wp2009_05_01
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    Cited by:

    1. Branstetter, Lee & Chatterjee, Chirantan & Higgins, Matthew J., 2022. "Generic competition and the incentives for early-stage pharmaceutical innovation," Research Policy, Elsevier, vol. 51(10).
    2. Farasat A. S. Bokhari & Franco Mariuzzo & Anna Rita Bennato, 2021. "Innovation and growth in the UK pharmaceuticals: the case of product and marketing introductions," Small Business Economics, Springer, vol. 57(1), pages 603-634, June.
    3. Bokhari, Farasat A.S. & Mariuzzo, Franco, 2018. "Demand estimation and merger simulations for drugs: Logits v. AIDS," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 653-685.
    4. Gugler, Klaus & Szücs, Florian, 2023. "Market Power and Regulation in Pharmaceutical Markets," Department of Economics Working Paper Series 343, WU Vienna University of Economics and Business.
    5. Tomaso Duso & Annika Herr & Moritz Suppliet, 2014. "The Welfare Impact Of Parallel Imports: A Structural Approach Applied To The German Market For Oral Anti‐Diabetics," Health Economics, John Wiley & Sons, Ltd., vol. 23(9), pages 1036-1057, September.
    6. Keaton Miller & Boyoung Seo, 2021. "The Effect of Cannabis Legalization on Substance Demand and Tax Revenues," National Tax Journal, University of Chicago Press, vol. 74(1), pages 107-145.
    7. Lee Branstetter & Chirantan Chatterjee & Matthew J. Higgins, 2016. "Regulation and welfare: evidence from paragraph IV generic entry in the pharmaceutical industry," RAND Journal of Economics, RAND Corporation, vol. 47(4), pages 857-890, November.
    8. Bokhari, Farasat A.S. & Schneider, Helen, 2011. "School accountability laws and the consumption of psychostimulants," Journal of Health Economics, Elsevier, vol. 30(2), pages 355-372, March.
    9. Gilad Sorek, 2015. "Health Insurance and Competition in Health Care Markets," Auburn Economics Working Paper Series auwp2015-03, Department of Economics, Auburn University.
    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. Margaret K. Kyle, 2018. "Are Important Innovations Rewarded? Evidence from Pharmaceutical Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 53(1), pages 211-234, August.
    12. Inge Geyskens & Barbara Deleersnyder & Marnik G. Dekimpe & Didi Lin, 2024. "Do consumers benefit from national-brand listings by hard discounters?," Journal of the Academy of Marketing Science, Springer, vol. 52(1), pages 97-118, January.
    13. Sarmah, Archita & De Giovanni, Domenico & De Giovanni, Pietro, 2020. "Compulsory licenses in the pharmaceutical industry: Pricing and R&D strategies," European Journal of Operational Research, Elsevier, vol. 282(3), pages 1053-1069.
    14. Callejas, Jerónimo & Mohapatra, Debi Prasad, 2021. "Welfare effects of public procurement of medicines: Evidence from Ecuador," International Journal of Industrial Organization, Elsevier, vol. 75(C).
    15. Byrski, Dennis & Wang, Lucy Xiaolu, 2025. "Marketing authorization and strategic patenting: Evidence from pharmaceuticals," Journal of Public Economics, Elsevier, vol. 247(C).
    16. Sacks, Daniel W., 2018. "Why do HMOs spend less? Patient selection, physician price sensitivity, and prices," Journal of Public Economics, Elsevier, vol. 168(C), pages 146-161.
    17. He, Wentao & Hao, Xiaoli, 2023. "Competition and welfare effects of introducing new products into the new energy vehicle market: Empirical evidence from Tesla’s entry into the Chinese market," Transportation Research Part A: Policy and Practice, Elsevier, vol. 174(C).

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    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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