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Estimating the Causal Effect of Entry on Generic Drug Prices Using Hatch–Waxman Exclusivity

Luke M. Olson () and Brett W. Wendling ()
Additional contact information
Luke M. Olson: U.S. Department of the Treasury
Brett W. Wendling: Federal Trade Commission

Review of Industrial Organization, 2018, vol. 53, issue 1, 139-172

Abstract: Abstract Competition among generics helps keep drug prices low and control medical costs. Good estimates of the effect on price of the entry of another generic competitor would inform competition policy and test oligopoly theories. However, identifying the causal effect of entry is difficult since the number of firms that compete in a market is endogenously determined. We exploit provisions of the 1984 Hatch–Waxman Act to identify a causal effect. We find that ignoring endogenous selection into generic drug markets imparts a significant downward bias to the estimates of the effects of two and three competitors on generic drug prices.

Keywords: Generic entry; Pharmaceutical; Prescription drugs; Price competition (search for similar items in EconPapers)
JEL-codes: L11 L13 L6 (search for similar items in EconPapers)
Date: 2018
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