Determinants of Entry: Chronic Treatment Drugs' Effect on Generic Manufacturers

Abstract

The American healthcare industry is a vast and intertwining system connecting hospitals, factories, and laboratories with the public. A country’s healthcare industry speaks volumes on the inequality present in a system. One of the most common practices in keeping drug prices low for consumer welfare is through competition. Adding generics to the market increases competition and has the benefit of expanding variety and options for the consumer. A market with competition from multiple suppliers is the best way to keep a drug’s price reasonable for the average American. Over the years many scholars have implemented studies and research towards finding the main determinants of drug prices. Having knowledge of the determinants can allow for markets to foretell the characteristics of the market’s future, the amount of competition, and how it will change. This information is vital for research and development and for producers to determine the most profitable drug markets to produce in. My study is significant in the abundance of generic drug literature as it focuses on the effect of drugs treating chronic conditions on the number of generics in the drug market. This is important as only a small amount of literature has covered this topic and if there is found to be a substantial effect it can be used as a generic determinant. Knowing the potential determinants of a generic manufacturer entering a drug market has a notable effect on prices, consumers, and brand name manufacturers. I gathered data on potential determinants and variables to perform an OLS regression on to showcase the effects the determinants have on generic manufacturers. My results show moderate support for the hypothesis that drugs treating a chronic condition have higher amounts of generic manufacturers in their market.