Brand Loyalty and Generic Entry: Why do Brand‐Name Drug Companies Launch Their Own Generics?

Yunyun Wan

The Japanese Economic Review, 2018, vol. 69, issue 3, 340-346

Abstract: Facing generic competition, brand‐name drug companies sometimes launch their own generics called “authorised generics” (AGs) through a third‐party entity. If that strategy works, an AG should be launched for every branded drug that comes off patent. This, however, contradicts the fact that only a small proportion of branded drugs have had AGs. To explain this puzzle, I develop a two‐period model in which a brand‐name drug company exploits its name brand before generic entry. The model predicts that the brand‐name company launches an AG only when brand loyalty is sufficiently weak.

Date: 2018
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