What Is the Price of Pay-to-Delay Deals?

Journal of Competition Law & Economics, 9(3), 739-775, 2012, DOI: 10.1093/joclec/nht016

14 Pages Posted: 25 Jan 2014 Last revised: 1 Jul 2015

See all articles by Farasat A. S. Bokhari

Farasat A. S. Bokhari

University of East Anglia (UEA) - School of Economic and Social Studies; University of East Anglia (UEA) - Centre for Competition Policy

Date Written: November 24, 2012

Abstract

When a branded drug manufacturer makes a payment to a potential entrant to delay generic entry it raises anticompetitive concerns. In this paper I highlight one such deal in a subsegment of drugs used to treat attention deficit hyperactivity disorder (ADHD) – mixed amphetamine salts (MAS) – and compute market equilibrium prices under three counterfactuals. In the first case, equilibrium prices are computed if all MAS drugs were produced by a single profit maximizing firm, while in the latter two counterfactuals, I compute equilibrium prices when either an immediate release generic or an extended release branded drug are not available in the market. The simulations show that the average percentage increase in drug prices is 4-4.5 times larger in the latter two cases (when a drug is not available in the market) compared to a simple joint profit maximization of the same products. In this respect, the challenges by the Federal Trade Commission to the so called, ‘pay-to-delay’ deals and the recent legislations introduced into the Congress to ban such deals are justified.

Keywords: pay-to-delay, reverse payment, price simulations, ADHD drugs

JEL Classification: I11, K21, L41

Suggested Citation

Bokhari, Farasat A. S., What Is the Price of Pay-to-Delay Deals? (November 24, 2012). Journal of Competition Law & Economics, 9(3), 739-775, 2012, DOI: 10.1093/joclec/nht016. Available at SSRN: https://ssrn.com/abstract=2384528

Farasat A. S. Bokhari (Contact Author)

University of East Anglia (UEA) - School of Economic and Social Studies ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

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