Patent Expiration and Competition: A dynamic limit price model

Anastasios Papanastasiou

No 140009, Working Papers from Canadian Centre for Health Economics

Abstract: We develop a dynamic model to explore the optimal pricing strategy of a monopolist that faces potential market entry at a given point in time. By engaging in promotional activities, the dominant firm may increase future demand for the product, while by charging below a limit price it can prevent competition from entering the market. Our analysis suggests that the optimal path for price and advertisement depends on the price elasticity of demand and the duration of monopoly life. Relating our model to the market for pharmaceuticals, we establish conditions that would give rise to a Generics Competition Paradox (GCP) and discuss how these conditions are linked to the existing theories that attempt to explain the GCP.

Keywords: Monopoly; generic competition; brand-name drugs; limit price; price elasticity of demand (search for similar items in EconPapers)
JEL-codes: C61 D21 D42 I11 L12 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2014-05
New Economics Papers: this item is included in nep-com, nep-ind, nep-ino, nep-ipr, nep-pr~ and nep-mkt
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Published Online, May 2014

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Persistent link: https://EconPapers.repec.org/RePEc:cch:wpaper:140009

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