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A DYNAMIC OLIGOPOLY STRUCTURAL MODEL FOR THE PRESCRIPTION DRUG MARKET AFTER PATENT EXPIRATION *
Author(s) -
Ching Andrew T.
Publication year - 2010
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2010.00615.x
Subject(s) - oligopoly , expiration date , welfare , nested logit , microeconomics , expiration , economics , prescription drug , consumer welfare , medical prescription , market structure , business , industrial organization , econometrics , medicine , market economy , pharmacology , chemistry , food science , respiratory system
This article incorporates consumer learning and heterogeneity into a dynamic oligopoly model for the prescription drug market. In the model, both firms and patients need to learn the generic qualities via patients' experiences, generic firms' entry decisions are endogenous, but their entry timings depend on a random approval process. I apply the model to examine the impact of shortening the expected generic approval time. Although this policy experiment brings generics to the market sooner, it increases a potential entrant's likelihood of entering a crowded market and hence could reduce the total number of generic entrants and consumer welfare.