IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

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

  • Tracy L. Regan

    ()

    (Department of Economics, University of Miami)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://moya.bus.miami.edu/~tregan/Research09.html
File Function: First version, 2009
Download Restriction: no

Paper provided by University of Miami, Department of Economics in its series Working Papers with number 2010-7.

as
in new window

Length: 19 pages
Date of creation: Aug 2007
Date of revision:
Publication status: Published
Handle: RePEc:mia:wpaper:2010-7
Contact details of provider: Postal: P.O. Box 248126, Coral Gables, FL 33124-6550
Phone: (305) 284-5540
Fax: (305) 284-2985
Web page: http://www.bus.miami.edu/faculty-and-research/academic-departments/economics/index.html

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Baltagi, Badi H. & Chang, Young-Jae, 2000. "Simultaneous Equations With Incomplete Panels," Econometric Theory, Cambridge University Press, vol. 16(02), pages 269-279, April.
  2. Griliches, Zvi & Cockburn, Iain, 1994. "Generics and New Goods in Pharmaceutical Price Indexes," American Economic Review, American Economic Association, vol. 84(5), pages 1213-32, December.
  3. Toshiaki Iizuka, 2004. "What Explains the Use of Direct-to-Consumer Advertising of Prescription Drugs?," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 349-379, 09.
  4. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 75-90, 03.
  5. Ellison, S & Cockburn, I & Griliches, A & Hausman, J, 1996. "Characteristics of Demand for Pharmaceutical Products : an Examination of four Cephalosporins," Working papers 96-24, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Dean, Joel, 1969. "Pricing Pioneering Products," Journal of Industrial Economics, Wiley Blackwell, vol. 17(3), pages 165-79, July.
  7. F. M. Scherer, 1993. "Pricing, Profits, and Technological Progress in the Pharmaceutical Industry," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 97-115, Summer.
  8. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  9. Baltagi, Badi H., 2004. "04.1.1. A Hausman Test Based on the Difference between Fixed Effects Two-Stage Least Squares and Error Components Two-Stage Least Squares," Econometric Theory, Cambridge University Press, vol. 20(01), pages 223-224, February.
  10. Glenn Ellison & Sara Fisher Ellison, 2011. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 1-36, February.
  11. Z. John Lu & William S. Comanor, 1998. "Strategic Pricing Of New Pharmaceuticals," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 108-118, February.
  12. Ellison, Sara Fisher & Mullin, Wallace P, 2001. "Gradual Incorporation of Information: Pharmaceutical Stocks and the Evolution of President Clinton's Health Care Reform," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 89-129, April.
  13. Coscelli, Andrea, 2000. "The Importance of Doctors' and Patients' Preferences in the Prescription Decision," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 349-69, September.
  14. Ernst R. Berndt & Margaret Kyle & Davina Ling, 2003. "The Long Shadow of Patent Expiration. Generic Entry and Rx-to-OTC Switches," NBER Chapters, in: Scanner Data and Price Indexes, pages 229-274 National Bureau of Economic Research, Inc.
  15. Ying Kong & James R. Seldon, 2004. "Pseudo-Generic Products and Barriers to Entry in Pharmaceutical Markets," Review of Industrial Organization, Springer, vol. 25(1), pages 71-86, 08.
  16. David Reiffen & Michael R. Ward, 2005. "Generic Drug Industry Dynamics," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 37-49, February.
  17. Reekie, W Duncan, 1978. "Price and Quality Competition in the United States Drug Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 26(3), pages 223-37, March.
  18. Baltagi, Badi H. & Chang, Young-Jae, 1994. "Incomplete panels : A comparative study of alternative estimators for the unbalanced one-way error component regression model," Journal of Econometrics, Elsevier, vol. 62(2), pages 67-89, June.
  19. Richard, Oliver & Van Horn, Larry, 2004. "Persistence in prescriptions of branded drugs," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 523-540, April.
  20. Mats A. Bergman & Niklas Rudholm, 2003. "The Relative Importance of Actual and Potential Competition: Empirical Evidence From the Pharmaceuticals Market," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 455-467, December.
  21. Ernst R. Berndt, 2002. "Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 45-66, Fall.
  22. Fiona M. Scott Morton, 1999. "Entry Decisions in the Generic Pharmaceutical Industry," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 421-440, Autumn.
  23. Morton I. Kamien & Israel Zang, 1999. "Virtual Patent Extension by Cannibalization," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 117-131, July.
  24. Baltagi, B.H., 2005. "Solutions to Problems Posed in Volume 20(1) and 20(2): 04.1.1. A Hausman Test Based on the Difference between Fixed Effects Two-Stage Least Squares and Error Components Two-Stage Least Squares Solutio," Econometric Theory, Cambridge University Press, vol. 21(02), pages 483-484, April.
  25. Baltagi, Badi H., 1981. "Simultaneous equations with error components," Journal of Econometrics, Elsevier, vol. 17(2), pages 189-200, November.
  26. Comanor, William S, 1986. "The Political Economy of the Pharmaceutical Industry," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1178-1217, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mia:wpaper:2010-7. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher Parmeter)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.