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http://ssrn.com/abstract=1622220
 
 

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Entry Threats and Pricing in the Generic Drug Industry


Steven Tenn


Federal Trade Commission - Bureau of Economics

Brett W. Wendling


Government of the United States of America - Federal Trade Commission

October 2, 2012

US Federal Trade Commission Bureau of Economics Working Paper No. 301

Abstract:     
We use the unique regulatory environment of the pharmaceutical industry to examine how potential competition affects generic drug pricing. Our identification strategy exploits a provision of the Hatch-Waxman Act that awards 180 days of marketing exclusivity to the first valid generic drug applicant against the holder of a branded drug patent. This provision creates observable drug-level variation in both actual and potential competition that allows us to identify their separate effects. We find mixed evidence of price being used as a strategic entry deterrent. In smaller drug markets, where entry is more easily deterred, we find that price falls in response to an increase in potential competition. We also find that few manufacturers enter these markets after the Hatch-Waxman exclusivity period, indicating this price reduction is an effective deterrent. In contrast, we find that generic incumbents accommodate entry in larger drug markets by lowering price only after competing generics enter the market.

Number of Pages in PDF File: 40

Keywords: Potential Competition, Entry Deterrence, Pharmaceutical, Pricing

JEL Classification: L11, L13, L65

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Date posted: June 8, 2010 ; Last revised: October 11, 2012

Suggested Citation

Tenn, Steven and Wendling, Brett W., Entry Threats and Pricing in the Generic Drug Industry (October 2, 2012). US Federal Trade Commission Bureau of Economics Working Paper No. 301. Available at SSRN: http://ssrn.com/abstract=1622220 or http://dx.doi.org/10.2139/ssrn.1622220

Contact Information

Steven Tenn
Federal Trade Commission - Bureau of Economics ( email )
600 Pennsylvania Avenue
Room 4232
Washington, DC 20580
United States
202-326-3243 (Phone)
202-326-3443 (Fax)
Brett W. Wendling (Contact Author)
Government of the United States of America - Federal Trade Commission ( email )
601 New Jersey Ave., NW
Washington, DC 20580
United States
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