Skip to main content
SpringerLink
Log in

Pseudo-Generic Products and Barriers to Entry in Pharmaceutical Markets

  • Published:
Review of Industrial Organization Aims and scope Submit manuscript

Abstract

This paper examines incentives for brand-name pharmaceutical producers to market pseudo-generic versions of their own branded products upon the expiry of patent protection.Using a two-stage game model, we determine that under plausible demand and cost conditions, brand-name incumbents can find it profitable to produce pseudo-generics as a means of blocking rivals' entry even when independent firms producing true generics face low entry costs.The model shows that social welfare can be higher when firms use pseudo-generics instead of capacity for entry deterrence as long as substitutability between brand-name and generic products is sufficiently high.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Bain, J.S. (1956) Barriers to New Competition. Cambridge: Harvard University Press.

    Google Scholar 

  • Congressional Budget Office (1998) How Increased Competition from Generic Drugs has Affected Prices and Returns in the Pharmaceutical Industry. Washington, D.C.: CBO Natural Resources and Commerce Division.

    Google Scholar 

  • Court of Appeal for Ontario (2000) Apotex Inc., Plainti/Appellant versus Hoffman La-Roche Limited, Glaxo Wellcome Inc., Pharmacia & Upjohn Inc. and Altimed Pharmaceutical Company Inc. Toronto: Docket: C33172 (December 14) 1–11.

  • Danzon, P M., and L.-W. Chao (2000) "Does Regulation Drive Out Competition in Phar-maceutical Markets?", The Journal of Law and Economics, 43 (2), 311–358.

    Google Scholar 

  • Dixit, A. (1979) "A Model of Duopoly Suggesting a Theory of Entry Barriers", The Bell Journal of Economics, 10 (1), 20–32.

    Google Scholar 

  • Dixit, A. (1980) "The Role of Investment in Entry Deterrence", Economic Journal, 90, 9–106.

    Google Scholar 

  • Ferrandiz, J.M. (1999) "The Impact of Generic Goods in the Pharmaceutical Industry", Health Economics 8 (7), 599–612.

    Google Scholar 

  • Freudenheim, M. (1992) "Merck Sets Generic Drug Sales: A Way to Compete When a Patent Is Up", New York Times, (Tuesday, Sept. 8) D1.

  • Grabowski, H., and J. Vernon (1992) "Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act", Journal of Law and Economics, 35 (2), 331–350.

    Google Scholar 

  • Hollis, A. (2001) "Closing the FDA' s Orange Book", Regulation, 24 (4), 14–17.

    Google Scholar 

  • Hollis, A. (2002) "The Importance of Being First: Evidence from Canadian Generic Phar-maceuticals", Health Economics, 11, 723–734.

    Google Scholar 

  • Hollis, A.(2003) "The Anti-Competitive Effects of Brand-Controlled "Pseudo-Generics" in the Canadian Pharmaceutical Market", Canadian Public Policy, 29 (1), 21–32.

    Google Scholar 

  • Komoto, K. (2001) "Do Pro t Rate Differentials Diminish Over Time? A Statistical Analysis of Long-Term Financial Data", NLI Research Institute paper no. 159 (mimeo), pp.8.

  • Modigliani, F. (1958) "New Developments on the Oligopoly Front", Journal of Political Economy, 66, 215–232.

    Google Scholar 

  • Morton, F.M. (2000) "Barriers to Entry, Brand Advertising, and Generic Entry in the US Pharmaceutical Industry", International Journal of Industrial Organization, 18, 1085–1104.

    Google Scholar 

  • Morton, F.M.S. (1999) "Entry Decisions in the Generic Pharmaceutical Industry", RAND Journal of Economics, 30 (3), 421–440.

    Google Scholar 

  • Reinhardt, U.W. (2001)"Perspectives on the Pharmaceutical Industry", Health Affairs (Sept/ Oct) 136–149.

  • Scherer, F.M. (1993) "Pricing, Profits and Technological Progress in the Pharmaceutical Industry", The Journal of Economic Perspectives, 7 (3), 97–115.

    Google Scholar 

  • Spence, F.M. (1977) "Entry, Investment, and Oligopolistic Pricing",The Bell Journal of Economics, 8, 534–544.

    Google Scholar 

  • Spence, F.M. (1979) "Investment Strategy and Growth in a New Market",The Bell Journal of Economics, 10, 1–19.

    Google Scholar 

  • Stackelberg, H. (1952) The Theory of the Market Economy, Alan T. Peacock, trans. New York: Oxford University Press, pp. 194–204.

    Google Scholar 

  • Sylos-Labini, P. (1962) Oligopoly and Technical Progress, Cambridge, MAs.: Harvard Uni-versity Press.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, The University College of Cariboo, Kamloops, BC, Canada V2C SN3. Tel.:

    Ying Kong & James R. Seldon

Authors
  1. Ying Kong
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. James R. Seldon
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Kong, Y., Seldon, J.R. Pseudo-Generic Products and Barriers to Entry in Pharmaceutical Markets. Review of Industrial Organization 25, 71–86 (2004). https://doi.org/10.1023/B:REIO.0000040524.32034.04

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1023/B:REIO.0000040524.32034.04

Search

Navigation