ABSTRACT
Previous economic studies on pharmaceutical price competition found wide variations across major developed countries. In the mostly free-pricing US, the price of originator products remains unchanged or even rises slightly in response to generic competition, while the price of generic products decreases with more generic entries and presumably moves toward the marginal cost of production (for example, see Caves, Whinston and Hurwitz, 1991, Grabowski and Vernon, 1992, and Frank and Salkever, 1997). Consequently, generics typically account for the bulk of molecule sales shortly after patent expiration in the US. In an extensive cross-country comparison, Danzon and Chao (2000) found that generic competition leads to lower prices in unregulated or less regulated countries such as the US, the UK, Canada, and Germany but is ineffective in countries with strict price regulation such as France, Italy, and Japan. However, their evidence on therapeutic competition, i.e., between products of similar molecules in the same class, is less conclusive due to selection biases associated with entry decisions (Danzon and Chao, 2000).
