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Entry Threats and Pricing in the Generic Drug Industry

Entry Threats and Pricing in the Generic Drug Industry published on

Authored by Federal Trade Commission

The Federal Trade Commission provides the first analysis of potential competition in the generic drug industry. Our identification strategy exploits a provision of the Hatch-Waxman Act that rewards 180 days of marketing exclusivity to the first 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, in larger drug markets the incumbent accommodates entry by lowering price only after competing manufacturers enter the market.

Publication Date:
Sep 24 2014
1502479753 / 9781502479754
Page Count:
Binding Type:
US Trade Paper
Trim Size:
8.5″ x 11″
Black and White
Related Categories:
Health & Fitness / General


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