Competition between Generic and Brand Name Drugs: New Evidence from the U.S. Pharmaceutical Market

Alberto Cavaliere and Ashin Moayedizadeh
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Ashin Moayedizadeh: University of Pavia

No 209, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: This paper explores different aspects of competition in the U.S. pharmaceutical industry in order to broaden our insight into price competition in the pharmaceutical market. The main focus is on the effects of patent expiry and generic entry on the brand and generic name drug prices. Using an unbalanced panel dataset of 19 branded and corresponding generic drugs, which faced their first generic entry between 2010 and 2014, we discovered that the Generic Competition Paradox does not arise according to the results obtained with our dataset. Though prices of brand-name drugs are continuously rising, each new generic entrant is associated with an average 2.6 percent decrease in the brand-name drug price. Moreover, the empirical findings in this study fully support the idea of market segmentation based on insurance coverage. We can state that after generic entry, the originator firms appear to demand higher prices in order to exercise price discrimination and exploit the market segment that is less price sensitive.

Keywords: Pharmaceutical industry; Generic entry; Brand drug price; Generic Competition Paradox; Market segmentation theory (search for similar items in EconPapers)
JEL-codes: D4 I11 L11 L65 (search for similar items in EconPapers)
Pages: 30
Date: 2022-12
New Economics Papers: this item is included in nep-com, nep-hea, nep-ind and nep-ipr
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Persistent link: https://EconPapers.repec.org/RePEc:pav:demwpp:demwp0209

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