Essays on Competition in the Pharmaceutical Industry

Authors

Jiangyun WanFollow

Document Type

Dissertation

Degree

Doctor of Philosophy (PhD)

Major/Program

Economics

First Advisor's Name

Kaz Miyagiwa

First Advisor's Committee Title

Committee Chair

Second Advisor's Name

Cem Karayalcin

Second Advisor's Committee Title

Committee Member

Third Advisor's Name

Timothy Page

Third Advisor's Committee Title

Committee Member

Fourth Advisor's Name

Mira Wilkins

Fourth Advisor's Committee Title

Committee Member

Keywords

generic entry competition, switching cost, merger paradox, Hatch-Waxman Act, pharmaceutical industry, authorized generics, innovation

Date of Defense

3-27-2015

Abstract

Chapter 1: Patents and Entry Competition in the Pharmaceutical Industry: The Role of Marketing Exclusivity

Effective patent length for innovation drugs is severely curtailed because of extensive efficacy and safety tests required for FDA approval, raising concern over adequacy of incentives for new drug development. The Hatch-Waxman Act extends patent length for new drugs by five years, but also promotes generic entry by simplifying approval procedures and granting 180-day marketing exclusivity to a first generic entrant before the patent expires. In this paper we present a dynamic model to examine the effect of marketing exclusivity. We find that marketing exclusivity may be redundant and its removal may increase generic firms' profits and social welfare.

Chapter 2: Why Authorized Generics?: Theoretical and Empirical Investigations

Facing generic competition, the brand-name companies some-times launch generic versions themselves called authorized generics. This practice is puzzling. If it is cannibalization, it cannot be profitable. If it is divisionalization, it should be practiced always instead of sometimes. I explain this phenomenon in terms of switching costs in a model in which the incumbent first develops a customer base to ready itself against generic competition later. I show that only sufficiently low switching costs or large market size justifies launch of AGs. I then use prescription drug data to test those results and find support.

Chapter 3: The Merger Paradox and R&D

Oligopoly theory says that merger is unprofitable, unless a majority of firms in industry merge. Here, we introduce R&D opportunities to resolve this so-called merger paradox. We have three results. First, when there is one R&D firm, that firm can profitably merge with any number of non-R&D firms. Second, with multiple R&D firms and multiple non-R&D firms, all R&D firms can profitably merge. Third, with two R&D firms and two non-R&D firms, each R&D firms prefer to merge with a non-R&D firm. With three or more than non-R&D firms, however, the R&D firms prefer to merge with each other.

Identifier

FI15032133

Recommended Citation

Wan, Jiangyun, "Essays on Competition in the Pharmaceutical Industry" (2015). FIU Electronic Theses and Dissertations. 1900.
https://digitalcommons.fiu.edu/etd/1900