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
Date Written: November 24, 2012
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: Suggested Citation