Competitive Entry in the Market for Branded Generic Drugs

Abstract

I analyze the determinants of lead time (the time lag between the first-mover's product release and the competitor's market entry) and its consequences for product prices, competition, and consumers. I investigate the case for the Indian branded generic pharmaceutical sector where substantial variation in lead time is observed. I show that overall entry is linked with product market profitability, but entry timing may be strategically related with both originator and competitor firm experience. This appears relevant for those products more likely to build up brand loyalty. I also show that lead time, once its potential endogeneity is accounted for, appears to increase the originator's post-entry market shares, but has no effect on prices. These findings indicate that market segmentation based on price sensitivity appears less likely in the presence of brand name prescriptions. To enable price competition, there is a need for quality assurance among otherwise substitutable generic drugs.