Does generic entry always increase consumer welfare?

Abstract

This article examines how the nature of competition between brands in a therapeutic category changes after generic entry and provide a framework for analyzing the effect of generic entry on consumer welfare that takes into account the generic free riding problem. It demonstrates that changes in competition along dimensions other than retail price--such as competition in research and development efforts and in promotional activities--may, in certain situations, result in generic entry having an overall negative impact on consumer welfare.