Generic competition in the US pharmaceutical industry

ABSTRACT We develop a simultaneous equations estimation framework to understand the interactions among generic entry, prices, and market shares. We base our estimates on a panel data sample of 40 brand-name drugs that first experienced generic competi-tion during the period July 1992–January 1998. We find that generic share and price are simultaneously determined, while the number of generic entrants is a key determi-nant of generic market share and the generic-to-brand price ratio. In addition, we find generic competition to be particularly intense for blockbuster drugs, which experience significantly more generic entrants, price erosion, and generic penetration than other drugs