Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act
![handle is hein.journals/jlecono35 and id is 335 raw text is: BRAND LOYALTY, ENTRY, AND PRICE
COMPETITION IN PHARMACEUTICALS
AFTER THE 1984 DRUG ACT*
HENRY G. GRABOWSKI and JOHN M. VERNON
Duke University
IN 1984, Congress enacted a new law that greatly affected the economics
of the pharmaceutical industry in the United States. It has been character-
ized as the most important legislation affecting competition in the phar-
maceutical industry since the 1962 Kefauver-Harris Amendments to the
Food and Drug Act. This 1984 law, known as the Drug Price Competition
and Patent Term Restoration Act (hereinafter the 1984 Act), facilitated
the entry of generic drug products after patent expiration while it also
restored part of the patent life lost during the premarket regulatory pro-
cess for new introductions.'
Market entry by generics was relatively limited prior to 1984 because
of costly Food and Drug Administration (FDA) requirements that had to
be met by the imitative products. That is, generic drugs often would have
to duplicate many of the pioneer's tests to gain market approval after
patent expiration. As a result of the 1984 law, generic products need only
demonstrate bioequivalence to the pioneer's brand, and generic entry has
increased significantly. This has provided a body of very interesting data
to analyze the pattern of entry and the pricing strategies followed by the
entrants and incumbents.
In this article, we make use of data covering the sales and prices of
the pioneer and generic products for eighteen drug products, generally
over the time period 1984-88. A number of issues are examined. First,
* Earlier versions of this article were presented at the Second World Congress on Health
Economics, the Applied Econometric Association Meetings, the American Economic Asso-
ciation Meetings, and Workshops at Duke University and University of California, Los
Angeles. We benefited from the comments from several participants at these meetings as
well as those from an anonymous referee.
' For an early analysis of this law, see Henry Grabowski & John Vernon, Longer Patents
for Lower Imitation Barriers: The 1984 Drug Act, 76 Am. Econ. Rev. Papers & Proc. 195
(1986).
[Journal of Law & Economics, vol. XXXV (October 1992)]
© 1992 by The University of Chicago. All rights reserved. 0022-2186/92/3502-0006$01.50](ViewImageLocal?handle=hein.journals/jlecono35&div=23&collection=journals&method=preview&ext=.png&size=3)
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Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act
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