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The unexpected consequences of generic entry

The unexpected consequences of generic entry
The unexpected consequences of generic entry
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.
0167-6296
Castanheira, Micael
ee506361-6cac-43df-bb2b-e008bc490254
Ornaghi, Carmine
33275e47-4642-4023-a195-39c91d0146b0
Siotis, Georges
3de229c7-c594-4ed9-8da4-24ad57646695
Castanheira, Micael
ee506361-6cac-43df-bb2b-e008bc490254
Ornaghi, Carmine
33275e47-4642-4023-a195-39c91d0146b0
Siotis, Georges
3de229c7-c594-4ed9-8da4-24ad57646695

Castanheira, Micael, Ornaghi, Carmine and Siotis, Georges (2019) The unexpected consequences of generic entry. Journal of Health Economics, 68, [102243]. (doi:10.1016/j.jhealeco.2019.102243).

Record type: Article

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.

Text
2019.09.18_pharma_RR_JHE - Accepted Manuscript
Restricted to Repository staff only until 17 March 2021.
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More information

Accepted/In Press date: 18 September 2019
e-pub ahead of print date: 1 October 2019
Published date: December 2019

Identifiers

Local EPrints ID: 434527
URI: http://eprints.soton.ac.uk/id/eprint/434527
ISSN: 0167-6296
PURE UUID: 450239a4-e3ec-46a1-a460-56795976247f
ORCID for Carmine Ornaghi: ORCID iD orcid.org/0000-0003-2704-2537

Catalogue record

Date deposited: 27 Sep 2019 16:30
Last modified: 15 Jul 2020 00:29

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