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Generics Demand and Price Competition in Pharmaceutical Markets with Heterogeneous Consumers

Author

Listed:
  • Alberto Cavaliere

    (University of Pavia)

  • Giovanni Crea

    (Vita-Salute San Raffaele University)

Abstract

To explain heterogeneous diffusion of generics in OECD countries, we have analysed the effect of information and consumers’ misperception on generics demand. A sequential price competition model with perceived vertical differentiation allows to consider the Generics Competition Paradox (GCP) the result of market rivalry between generics and originators, and to discuss dynamic efficiency issues. We have extended our model to evaluate third party insurance and physicians’ support to brand- name drugs. In each equilibrium, the originator’s price is persistently higher than the generics; however, price competition is not confined to generics. We have reconsidered the GCP as rooted on optimistic misperception concerning the superior quality of brands.

Suggested Citation

  • Alberto Cavaliere & Giovanni Crea, 2023. "Generics Demand and Price Competition in Pharmaceutical Markets with Heterogeneous Consumers," DEM Working Papers Series 210, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0210
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    File URL: https://economiaemanagement.dip.unipv.it/sites/dip10/files/2022-12/DEMWP0210.pdf
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    More about this item

    Keywords

    Perceived Vertical Differentiation; Brand Premium; Information Disparity; Optimistic Misperception; Generics Competition Paradox;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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