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Global Competition and the United States Pharmaceutical Industry

Lall Ramrattan and Michael Szenberg

The American Economist, 2006, vol. 50, issue 2, 65-82

Abstract: Within the background of the global economy, the authors evaluate competition among domestic firms, and ascertain impact on the domestic pharmaceutical industry. This paper analyzes the industry's structure, conduct and performance to show that the pharmaceutical industry did not escape the effects of free trade areas and global competition, despite the general view that it is a high-profit industry. The U.S. government aided the industry in the areas of lengthening of patents life, allowing mergers, and the negotiation of international property rights. Also, firms have come to embrace increased rivalries in the areas of non-price tactics. We found small firms reacting to a leader, such as Merck, previous R&D and advertising outlays, and that they find a haven in the area of generics rather then basic research. The industry embraces an array of price strategies, relating to generics and the lack of information about prices at home, and unfair competition from abroad, an area where the government could play a larger role. Several hypotheses based on the literature have been advanced to ascertain these results.

Date: 2006
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