Review of Industrial Organization (2005) 27:329–350 © Springer 2005
How do Brands’ “Own Generics” Affect
Department of Economics and Institute of Health Economics, University of Calgary, 2500
University Dr NW, Calgary, AB T2N 1N4 Canada. E-mail: email@example.com
Abstract. This paper examines the price effects of generic drugs that are produced by
brand-name drug ﬁrms and that are labeled, priced, and marketed to compete against
independent generics. The strategy of introducing such “pseudo-generics” – also known
as “authorized generics” – has raised some antitrust concerns. One defense of this strat-
egy has been that the additional competition created by pseudo-generics should lead to
lower prices. This paper develops a simple model to show that pseudo-generics can be
expected to have exactly the opposite effect. It then examines empirical evidence on this
point from the Canadian pharmaceutical market, showing that there appears to be a pos-
itive relationship between drug prices and the share of generic sales made by the brand’s
Key words: Competition, generics, pharmaceuticals.
JEL Classiﬁcations: L12, I18.
This paper examines how the use of “pseudo-generics” inﬂuences pricing
in the Canadian pharmaceutical market. Pseudo-generics are generic-style
drugs produced by the brand manufacturer on the same production lines
as the brand product to the identical formulation and standards as the
brand, but relabeled under a generic name and priced to compete against
other generics. In the US, these are sometimes called “authorized generics”.
Often these pseudo-generics are sold a few months before any other gener-
ics enter the market, a strategy that does cannibalize higher-priced brand
sales. Hollis (2003) and Kong and Selden (2004) show how this strategy can
also harm other generics.
In this paper, I demonstrate empirically that the introduction of a
pseudo-generic into the market before any independent generic enters,
while costly to the brand manufacturer, is correlated with higher prices of
the branded product than if the brand manufacturer delayed entry of the
pseudo-generic by several months. This result is consistent with a simple
theoretical model laid out in the paper.