Room: Phillips 307
Time: Mon 10:15 AM-11:45 AM

Generic Pharmaceutical Competition

Chair: Anup Malani (University of Chicago)

Session Description

In the United States, pharmaceuticals comprise the largest share of patient out-of-pocket costs, more than twice as much as hospital out-of-pocket costs. Growth in pharmaceutical spending has, however, slowed due to greater use of generic pharmaceuticals (Hartman et al. 2009). Generic pharmaceuticals have the potential to provide great savings, but in some countries that potential is unmet. The extent of the savings from generics depends on generic competition with other generic manufacturers and on generic competition with brand- name manufacturers.
In some countries, generic competition is dampened by the regulatory environment. We will discuss cross-country variation in regulatory environments, including the role of the physician as prescriber and dispenser. When physicians have a choice between dispensing branded and generic drugs, they often choose the branded drug.
Use of generics can reduce pharmaceutical price inflation, if inflation is measured at the molecule level rather than differentiating between the generic and branded product. Scholars have suggested ways to improve inflation measurement, including how to account for generic entry. Few studies have, however, examined the effect of pharmaceutical inflation regulation. One exception is Abbott (1995) who predicted that inflation regulation for pharmaceuticals would increase the launch price and decrease profits. The literature in game theory, however, suggests that firms can benefit from making credible commitments. If forward-looking consumers expect lower future prices they might be more willing to consume today. While firms might benefit from credible commitments made by the firm, they do not necessarily benefit from regulations made by governments, so the effect on profit is ambiguous. We will discuss how constraining price increases affects price levels, profits, and welfare. We will include surprising cases in which inflation constraints increase prices levels, increase inflation, and/or increase profits.
Generics provide useful price competition, but overlooked is the reduction in advertising associated with generic entry. Advertising can provide valuable information to physicians and patients. We will discuss how competition between brands in a therapeutic category changes after generic entry. We will weigh the costs and benefits of competition from generics. In some cases, generic entry has an overall negative impact on consumer welfare.

Key Terms None

Session Organizer: David Ridley (Duke University)

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Presentations

1. Competition in Generic Pharmaceutical Markets: Cross-National Evidence

   Presenter: Michael Furukawa (Arizona State University)

   Discussant: Chris Stomberg (Bates White)

2. Does Generic Entry Always Increase Consumer Welfare?

   Presenter: Rahul Guha (Cornerstone Research)

   Discussant: Jeffrey McCullough (University of Minnesota)

3. The Wrong Prescription? Price Regulation in a Market with Consumer Start-Up Costs

   Presenter: David Ridley (Duke University)

   Discussant: Ernst Berndt (Massachusetts Institute of Technology)