Dynamic Competition in Pharmaceuticals: Patent Expiry, Generic Penetration, and Industry Structure
This paper investigates patterns of industrial dynamics and competition in the pharmaceutical industry, with particular reference to the consequences of patent expiry in different countries. We focus on the competition at the level of single chemical entities, distinguishing between original brands and generic products. Quarterly data, spanning from July 1987 to December 1998, on sales of pharmaceutical products in four countries (USA, UK, Germany, and France) constitute the basis of our analysis. All the products containing major molecules whose patent expiration date lies between 1986 and 1996 are included in our sample. We show how diffusion of generics is linked to the characteristics of the market and investigate how price dynamics of original products are affected by generic competition. Our empirical investigation shows that the dynamics of drug prices and the competition by generic drugs vary significantly across countries. This heterogeneity notwithstanding, a clear distinction seems to emerge. On the one hand, systems that rely on market-based competition in pharmaceuticals promote a clear distinction between firms that act as innovators and firms that act as imitators after patent expiry. Here, original products enjoy premium prices and exclusivity profits under patent protection, and face fierce price competition after patent expiry. On the other hand, in systems that rely on administered prices, penetration by generic drugs tends to be rather limited. Its descriptive and preliminary nature notwithstanding, our analysis seems to have relevant implications at different levels of generality, especially for Europe.
|Date of creation:||10 Feb 2004|
|Publication status:||Published in The European Journal of Health Economics 2.5(2004): pp. 175-182|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Andrew Ching, 2000. "Dynamic Equilibrium in the US Prescription Drug Market After Patent Expiration," Econometric Society World Congress 2000 Contributed Papers 1242, Econometric Society.
- Grabowski, Henry G & Vernon, John M, 1992. "Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 331-350, October.
- Hudson, John, 2000. "Generic take-up in the pharmaceutical market following patent expiry: A multi-country study," International Review of Law and Economics, Elsevier, vol. 20(2), pages 205-221, June.
- Ashiya, Masahiro, 2000.
"Weak entrants are welcome,"
International Journal of Industrial Organization,
Elsevier, vol. 18(6), pages 975-984, August.
- Aidan Hollis, 2003. "The Anti-Competitive Effects of Brand-Controlled "Pseudo- Generics" in the Canadian Pharmaceutical Market," Canadian Public Policy, University of Toronto Press, vol. 29(1), pages 21-31, March.
- Blundell, Richard & Griffith, Rachel & Van Reenen, John, 1995.
"Dynamic Count Data Models of Technological Innovation,"
Royal Economic Society, vol. 105(429), pages 333-344, March.
- Richard Blundell & Rachel Griffith & John Van Reenen, 1994. "Dynamic count data models of technological innovation," IFS Working Papers W94/10, Institute for Fiscal Studies.
- Elias Mossialos, 1997. "Citizens' Views on Health Care Systems in the 15 Member States of The European Union," Health Economics, John Wiley & Sons, Ltd., vol. 6(2), pages 109-116.
- Fabio Pammolli & Laura Magazzini & Luigi Orsenigo, 2002. "The intensity of competition after patent expiry in pharmaceuticals. A cross-country analysis," Revue d'Économie Industrielle, Programme National Persée, vol. 99(1), pages 107-131.
- Sanghoon Ahn, 2002. "Competition, Innovation and Productivity Growth: A Review of Theory and Evidence," OECD Economics Department Working Papers 317, OECD Publishing.
- Danzon, Patricia M. & Chao, Li-Wei, 2000. "Cross-national price differences for pharmaceuticals: how large, and why?," Journal of Health Economics, Elsevier, vol. 19(2), pages 159-195, March.
- Gambardella, Alfonso & Orsenigo, Luigi & Pammolli, Fabio, 2000. "Global Competitiveness in Pharmaceuticals: A European Perspective," MPRA Paper 15965, University Library of Munich, Germany.
- Yi, Sang-Seung, 1999. "Entry, licensing and research joint ventures," International Journal of Industrial Organization, Elsevier, vol. 17(1), pages 1-24, January.
- Fiona M. Scott Morton, 1997. "Entry Decisions in the Generic Pharmaceutical Industry," NBER Working Papers 6190, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:15968. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.