Generic entry, price competition, and market segmentation in the prescription drug market

Tracy Regan

International Journal of Industrial Organization, 2008, vol. 26, issue 4, 930-948

Abstract: This paper studies the effects of generic entry on post-patent price competition for 18 prescription drugs recently exposed to competition. An independent, validating test of the "generic competition paradox" is conducted using a newly created data set. Each generic entrant is associated with an average 1% increase in the branded price. The one-way error component model accounts for intermolecular competition, market segmentation, and endogeneity of entry and finds branded prices increasing by 2%. Alternative definitions of entry suggest that price competition is confined to the generic market. The unique payer-type feature of the data offers empirical evidence supporting market segmentation.

Date: 2008
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Working Paper: Generic entry, price competition, and market segmentation in the prescription drug market (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:26:y:2008:i:4:p:930-948

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