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Markups and Fixed Costs in Generic and Off-Patent Pharmaceutical Markets

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Listed:
  • Sharat Ganapati
  • Rebecca McKibbin

Abstract

There is wide dispersion in pharmaceutical prices across countries with comparable quality standards. Under monopoly, off-patent and generic drug prices are at least four times higher in the United States than in comparable English-speaking high income countries. With five or more competitors, off-patent drug prices are similar or lower. Our analysis shows that differential US markups are largely driven by the market power of drug suppliers and not due to wholesale intermediaries or pharmacies. Furthermore, we show that the traditional mechanism of reducing market power – free entry – is limited because implied entry costs are substantially higher in the US.

Suggested Citation

  • Sharat Ganapati & Rebecca McKibbin, 2021. "Markups and Fixed Costs in Generic and Off-Patent Pharmaceutical Markets," NBER Working Papers 29206, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29206
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    Cited by:

    1. Clark, Robert & Fabiilli, Christopher & Lasio, Laura, 2022. "Collusion in the US generic drug industry," International Journal of Industrial Organization, Elsevier, vol. 85(C).

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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