Session: Generic Pharmaceutical Competition
Room: Phillips 307
Time: Mon 10:15-11:45

Presenter: Rahul Guha (Cornerstone Research. )

Discussant: Jeffrey McCullough (University of Minnesota)

Abstract

Generic competition is usually assumed to be beneficial for consumer welfare. As generics enter the market, drug retail prices fall and patients switch from high-priced branded drugs to lower-priced generics. However, lower generic retail prices are not the only effect of generic entry. In particular, generic entry introduces free riding by generic manufacturers on the branded manufacturer's efforts to compete with other branded products. This includes research and development and promotional efforts. As a result, generic entry causes brand manufacturers to stop conducting further research that is potentially beneficial for consumers and to decrease or even eliminate promotional efforts such as detailing, sampling, and provision of rebates. In this article we examine how the nature of competition between brands in a therapeutic category changes after generic entry and provide a framework for analyzing the effect of generic entry on consumer welfare which takes into account the generic free riding problem. We demonstrate that in certain cases changes in competition along dimensions other than retail price may result in the overall negative impact of generic entry on consumer welfare.

Key Terms

pharmaceutical, generic, price

Authors:

Henry Grabowski (Duke University) , Tracy Lewis (Duke University) , Rahul Guha (Cornerstone Research) , Zoya Ivanova , Maria Salgado and Sally Woodhouse (Cornerstone Research)