Generics Demand and Price Competition in Pharmaceutical Markets with Heterogeneous Consumers

Alberto Cavaliere and Giovanni Crea ()
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Giovanni Crea: Vita-Salute San Raffaele University

No 210, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: To explain heterogeneous diffusion of generics in OECD countries, we have analysed the effect of information and consumers’ misperception on generics demand. A sequential price competition model with perceived vertical differentiation allows to consider the Generics Competition Paradox (GCP) the result of market rivalry between generics and originators, and to discuss dynamic efficiency issues. We have extended our model to evaluate third party insurance and physicians’ support to brand- name drugs. In each equilibrium, the originator’s price is persistently higher than the generics; however, price competition is not confined to generics. We have reconsidered the GCP as rooted on optimistic misperception concerning the superior quality of brands.

Keywords: Perceived Vertical Differentiation; Brand Premium; Information Disparity; Optimistic Misperception; Generics Competition Paradox (search for similar items in EconPapers)
JEL-codes: D82 L13 L15 (search for similar items in EconPapers)
Pages: 68
Date: 2023-05
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