Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act
Abstract
IN 1984, Congress enacted a new law that greatly affected the economics of the pharmaceutical
industry in the United States. It has been characterized as the most important legislation
affecting competition in the pharmaceutical 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 process for new introductions.1 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.
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Henry G. Grabowski
Professor Emeritus of Economics
Professor Grabowski specializes in the investigation of economics in the pharmaceutical
industry, government regulation of business, and the economics of innovation. His
specific interests within these fields include intellectual property and generic competition
issues, the effects of government policy actions, and the costs and returns to pharmaceutical
R&D. He has over one hundred peer reviewed articles analyzing the economics of pharmaceuticals
and also several books and monograph publica

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