The Hatch-Waxman Act grants a period of exclusive marketing to the first generic drug manufacturer who can demonstrate bioequivalence to a branded product coming off patent. At the end of 180 days, generic drug companies face competition not only from the branded seller but also from additional generics. Some generic manufacturers then choose to lower their already low prices still further to deter additional entry. In smaller drug markets, this strategic entry deterrence averages a price decline of 18 percent. The number of additional entrants then falls to 2.7 firms, down by 54 percent relative to the entry that occurs in the absence of limit pricing. Profit declines but much less than if the firstmover had not adopted a limit pricing strategy. In contrast, in larger drug markets, few generic first-movers reduce their prices at the end of the 180-day exclusive period, and entry then leads to an average of 5.8 firms. Profit is apparently higher than if the generic first-mover had adopted a limit pricing strategy.
Identify several blockbuster large drug markets that have gone off patent. Do you observe many generic sellers such as private label drug store chains?
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