Wednesday, June 3, 2009
Posted by D. Daniel Sokol
Farasat A.S. Bokhari (FSU - Econ) and Gary M. Fournier (FSU - Econ) explain Entry in the ADHD Drugs Market: Welfare Impact of Generics and Me-toos.
ABSTRACT: In this paper, we exploit a novel approach for instrumenting a differentiated products demand system for therapeutically equivalent drugs. Using unusually detailed sales data on psychostimulant drugs, used to treat Attention Decit Hyperactivity Disorder (ADHD), we are able to identify and measure substitution patterns across a range of drugs. We find that the demand for ADHD drugs is quite elastic and there are significant substitution possibilities among these drugs, both within the molecule and form, as well as across the segments. In addition, the first-time introduction of a generic drug shows large welfare gains due to expansion of the market to price sensitive consumers. Further, the welfare gains due to the introduction of me-too drugs vary by the novelty of the drug, and for significantly new varieties can be as large as those of the introduction of a generic. Our results bear policy implications for both, the speed with which new drugs are approved for marketing, as well as for actions among pharmaceutical firms that may delay the
entry of a generic drug.