Manufacturing and Regulatory Barriers to Generic Drug Competition: A Structural Model Approach

41 Pages Posted: 24 Mar 2018 Last revised: 18 Apr 2018

See all articles by Yixin (Iris) Wang

Yixin (Iris) Wang

University of Illinois at Urbana-Champaign - Department of Business Administration

Jun Li

University of Michigan, Stephen M. Ross School of Business

Ravi Anupindi

University of Michigan, Stephen M. Ross School of Business

Date Written: March 21, 2018

Abstract

Understanding the drivers of market concentration in the generic pharmaceutical industry is essential to guaranteeing the availability of low-cost generics. In this paper, we develop a structural model to capture the multiple determinants governing manufacturers' entry decisions; in particular, we focus on how manufacturing complexity and the regulatory environment affect concentration in generic drug markets. We estimate the model using data collated from six disparate sources. We find that manufacturing complexity, as reflected in the drug administration route, for example, significantly reduces the likelihood of generics entry. Moreover, the speed at which generic drug applications are processed by the FDA significantly affects the number of firms entering a market. Our policy simulations suggest that to encourage competition in the generic drug markets, the FDA needs to maintain a moderate review speed; being either too fast or too slow can be problematic and associated with more concentrated markets.

Keywords: Government Regulation, Market Entry Decision, Structural Modeling

Suggested Citation

Wang, Yixin (Iris) and Li, Jun and Anupindi, Ravi, Manufacturing and Regulatory Barriers to Generic Drug Competition: A Structural Model Approach (March 21, 2018). Available at SSRN: https://ssrn.com/abstract=3145635 or http://dx.doi.org/10.2139/ssrn.3145635

Yixin (Iris) Wang (Contact Author)

University of Illinois at Urbana-Champaign - Department of Business Administration ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Jun Li

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Ravi Anupindi

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734.615.8621 (Phone)

HOME PAGE: http://michiganross.umich.edu/faculty-research/faculty/ravi-anupindi

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