608. The Role of Information Asymmetry Between Brand-Name and Generic Firms in Pharmaceutical Markets: Limit Pricing and the Generic Competition Paradox
Invited abstract in session TD-11: Pharmaceuticals and manufacturers, stream OR in Healthcare (ORAHS).
Tuesday, 14:30-16:00Room: Clarendon SR 1.03
Authors (first author is the speaker)
| 1. | Qinquan Cui
|
| UCL School of Management, University College London | |
| 2. | Kenan Arifoglu
|
| School of Management, University College London | |
| 3. | Dongyuan Zhan
|
| School of Management | UCL |
Abstract
Brand-name firms, leveraging their extensive resources and patent protection, possess more information about consumers compared to generic firms. This information asymmetry plays a crucial role in shaping pharmaceutical markets. Moreover, following the entry of their generic alternatives, some brand-name drug prices experience a paradoxical increase (i.e., the Generic Competition Paradox (GCP)). However, existing research overlooks the information asymmetry between brand-name and generic firms, failing to provide a comprehensive understanding of pharmaceutical markets. To address this, we develop a game-theoretic model with signaling to analyze interactions between a brand-name firm and a generic firm over two periods (signaling and full-information). We find that the brand-name firm can use limit pricing during the signaling period to deter generic entry by charging below its monopoly price, then increase its price and allow entry in the full-information period, leading to the GCP. Consequently, under information asymmetry, limit pricing may arise from the brand-name firm's anticompetitive practices, offering an alternative explanation for the GCP. While typically resulting in higher drug prices and reduced consumer choice, limit pricing and the GCP can sometimes benefit consumers and society. This challenges the prevailing belief that information asymmetry and the GCP are always detrimental, highlighting their nuanced impacts
Keywords
- Health Care
Status: accepted
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