Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, September 15, 2020

The Unexpected Consequences of Generic Entry

The Unexpected Consequences of Generic Entry

By:

Micael Castanheira De Moura; Georges Siotis; Carmine Ornaghi

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.

URL:

http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/298643&r=com

https://lawprofessors.typepad.com/antitrustprof_blog/2020/09/the-unexpected-consequences-of-generic-entry.html

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