Drug pricing is very complex and it is difficult for consumers to understand how much different drugs actually cost. Pharmaceutical manufacturers, insurers, pharmacy benefit managers (PBMs), pharmacies, along with regulations, all play a role in the pricing structure for a particular drug. This is especially true when comparing brand name drugs with generics, or biosimilars, after the brand’s patent expires.
The generic paradox predicts that as generic manufacturing companies enter the market for a pharmaceutical product coming off patent protection, brand name firms actually increase prices with each additional competitor, rather than lowering price as the standard theory of competition would predict.
Authors suggest the paradox exists due to the presence of brand loyalty, the presence of both price-sensitive and price-insensitive buyers in the market, and in some cases, the absence of therapeutic equivalence among the generic substitute. This analysis tests for the presence of a generic paradox in a sample of 79 pairs of brand and generic drugs for which the patent on the branded version expired between the years 2010 and 2018. Complemented by legal and moral discussion of U.S pricing policy, the research reviews relevant background details regarding laws, the process of filing a New Drug Application (NDA), and explains elements behind the data and techniques that brand-name producers use to prolong monopolist market power. The conclusion summarizes the current results regarding the generic paradox and offers suggestions for further studies.