corner
Healthy Skepticism
Join us to help reduce harm from misleading health information.
Increase font size   Decrease font size   Print-friendly view   Print
Register Log in

Healthy Skepticism Library item: 7929

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

 

Publication type: Journal Article

Hollenbeak CS.
The effect of generic competition on prescription to over-the-counter switching.
Pharmacoeconomics 1999 Dec; 16:(6):661-8


Abstract:

A model of prescription to OTC switching that helps explain the role of potential generic competition in a firm’s decision to switch is presented, and what market conditions are necessary for the threat of generic competition to induce switching are examined. The model shows that switching from the prescription to OTC market may occur as a response to potential generic competition. Firms switch because they know that if they do not, a generic may initiate a switch and become the first mover in the OTC market.

OBJECTIVE: While it is generally accepted that the decision to switch a drug from the prescription market to the over-the-counter (OTC) market is based on an optimization problem that firms are solving, no attempts have been made to formalize the problem. The purpose of this article is to present a model of prescription to OTC switching that helps explain the role of potential generic competition in a firm’s decision to switch. In particular, we examine what market conditions are necessary for the threat of generic competition to induce switching. DESIGN AND SETTING: The model is game-theoretic, played between an incumbent firm and a potential generic entrant, and is solved for its subgame perfect equilibrium. The incumbent first decides whether to apply to the FDA to switch to the OTC market. If the incumbent declines, then the potential generic entrant has the opportunity to apply for the switch. The FDA then accepts or rejects the application, and the generic chooses whether to enter the market. RESULTS: In equilibrium, when applying to switch is costless, switching occurs if the probability that the application will be approved by the FDA is strictly positive and the OTC market is characterized by first-mover advantages. Adding a cost to the application process places restrictions on the probability of FDA approval to offset the cost of applying. The probability of approval must be sufficiently high to offset the cost of the application. CONCLUSIONS: The model shows that switching from the prescription to OTC market may occur as a response to potential generic competition. Firms switch because they know that if they do not, a generic may initiate a switch and become the first mover in the OTC market.

Keywords:
Drug Costs Drugs, Generic/economics* Drugs, Non-Prescription/economics* Economic Competition/economics* Models, Economic Prescriptions, Drug/economics*

 

  Healthy Skepticism on RSS   Healthy Skepticism on Facebook   Healthy Skepticism on Twitter

Please
Click to Register

(read more)

then
Click to Log in
for free access to more features of this website.

Forgot your username or password?

You are invited to
apply for membership
of Healthy Skepticism,
if you support our aims.

Pay a subscription

Support our work with a donation

Buy Healthy Skepticism T Shirts


If there is something you don't like, please tell us. If you like our work, please tell others.

Email a Friend








Far too large a section of the treatment of disease is to-day controlled by the big manufacturing pharmacists, who have enslaved us in a plausible pseudo-science...
The blind faith which some men have in medicines illustrates too often the greatest of all human capacities - the capacity for self deception...
Some one will say, Is this all your science has to tell us? Is this the outcome of decades of good clinical work, of patient study of the disease, of anxious trial in such good faith of so many drugs? Give us back the childlike trust of the fathers in antimony and in the lancet rather than this cold nihilism. Not at all! Let us accept the truth, however unpleasant it may be, and with the death rate staring us in the face, let us not be deceived with vain fancies...
we need a stern, iconoclastic spirit which leads, not to nihilism, but to an active skepticism - not the passive skepticism, born of despair, but the active skepticism born of a knowledge that recognizes its limitations and knows full well that only in this attitude of mind can true progress be made.
- William Osler 1909