Abstract: This article estimates welfare effects of accelerated generic entry via Paragraph-IV challenges. Using data from 2000-2008 for hypertension drugs in the U.S. we estimate demand using a random coefficients logit model. We find consumers gain $42 billion while producers lose $32.5 billion from entry. This modest $9.5 billion gain in social welfare is consistent with our observation that overall consumption does not increase after entry – generic sales displace branded sales, shifting surplus downstream from producers to consumers, insurance companies, and retailers. We demonstrate significant cross-molecular substitution and discuss challenges in determining what fraction of downstream surplus actually goes to consumers.

Authors’ Name: Lee G. Branstetter, Chirantan Chatterjee and Matthew Higgins

URL: http://onlinelibrary.wiley.com/journal/10.1111/%28ISSN%291756-2171

Journal: The RAND Journal of Economics

Volume, Issue, Page Numbers: forthcoming 2016