NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Alice M. Ellyson

The Comparative Health Outcomes, Policy,
and Economics (CHOICE) Institute
1959 NE Pacific St
Box - 357630
Seattle, WA 98195

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: The Comparative Health Outcomes, Policy, and Economics (CHOICE) Instit

NBER Working Papers and Publications

March 2018The New Prescription Drug Paradox: Pipeline Pressure and Rising Prices
with Anirban Basu: w24387
Economic literature has extensively studied how prices for incumbent pharmaceutical drugs respond to generic competition after entry. However, less attention has been paid to pricing behavior in anticipation of brand-to-brand competition. We contribute to this gap in the literature by both developing a model of pricing strategies for incumbent drug manufacturers under tiered-insurance anticipating branded competition. Our model predicts rising prices for incumbent drugs for a range of elasticities as the likelihood of entry increases from competitors with horizontally-differentiated products. Using the insulin market as a natural experiment, we exploit exogenous variation in a potential entrant's completion of clinical trials to identify the effect of drug pipeline pressure on the prices o...
 
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