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The Unexpected Consequences of Generic Entry

Micael Castanheira (), Georges Siotis and Carmine Ornaghi

ULB Institutional Repository from ULB -- Universite Libre de Bruxelles

Abstract: Generic drugs are sold at a fraction of the original brand price. Yet, generic entry typically produces a drop in the quantity market share of the molecule losing exclusivity. This effect is economically and statistically significant for a large dataset covering hundreds of prescription drugs sold in the US during the period 1994Q1–2003Q4. This paper proposes the first systematic analysis of what appears to be a market anomaly.We propose a model to characterize the market equilibrium before and after generic entry. We identify precise conditions under which entry reduces the quantity market share of the molecule. Intriguingly, this is more likely to occur when the remaining patent-protected molecules feature low horizontal differentiation. We test this and other theoretical predictions of the model and find they are validated empirically.

Keywords: Non-price competition; Pharmaceutical industry; Consumer choice; Generic entry (search for similar items in EconPapers)
JEL-codes: D22 I11 L13 (search for similar items in EconPapers)
Date: 2019-12-01
New Economics Papers: this item is included in nep-com and nep-ind
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Citations: View citations in EconPapers (3) Track citations by RSS feed

Published in: Journal of health economics (2019) v.68

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