The competitive impact of branded generic medicine in a developing country

Abstract

This paper studies the impact of branded generic competition on 47 molecules recently exposed to competition between January 2002 and July 2017 in the Chilean retail pharmaceutical market. First, making an effort to get the true price differential between branded generics and innovators and its changes through time, we apply the Hausman-Taylor model, controlling for several market and molecule characteristics. The core of our research lies in the estimation of the impact of branded generic competition over prices and quantities of the innovator -testing the market segmentation theory-, and its effect over the total doses dispensed in the market. In doing so, a propensity score matching with a differences in differences approach was adopted, and 26 molecules were involved in this estimation. The results show that in the time lapse of 48 months from the first entrant, the branded generic competition is capable of expanding the retail market supply in 148.1%. This is explained by the lower prices of the branded generic denomination, that in the gross average are 33% cheaper than the innovator alternatives. Finally, no statistically significant effect is observed over prices and quantities of the innovator, validating the generic competition paradox for the Chilean market.