Pharmaceutical Generics, Vertical Product Differentiation and Public Policy

Abstract

This paper studies oligopolistic competition in o¤-patent pharmaceutical markets using a vertical product di¤erentiation model. This model can explain the observation that countries with stronger regulations have smaller generic market shares. It can also explain the diferences in observed regulatory regimes. Stronger regulation may be due to a higher proportion of production that is done by foreign …rms. Finally, a closely related model can account for the observed increase in prices by patent owners after entry of generic producers.