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Generic entry, price competition, and market segmentation in the prescription drug market

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  • Tracy L. Regan

    (Department of Economics, University of Miami)

Abstract

This paper studies the effects of generic entry on post-patent price competition for 18 prescription drugs recently exposed to competition. An independent, validating test of the “generic competition paradox” is conducted using a newly created data set. Each generic entrant is associated with an average 1% increase in the branded price. The one-way error component model accounts for intermolecular competition, market segmentation, and endogeneity of entry and finds branded prices increasing by 2%. Alternative definitions of entry suggest that price competition is confined to the generic market. The unique payer-type feature of the data offers empirical evidence supporting market segmentation.

Suggested Citation

  • Tracy L. Regan, 2007. "Generic entry, price competition, and market segmentation in the prescription drug market," Working Papers 2010-7, University of Miami, Department of Economics.
  • Handle: RePEc:mia:wpaper:2010-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Generic entry; Price competition; Prescription drugs; Market segmentation; One-way error component model; EC2SLS;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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