This article incorporates consumer learning and heterogeneity into a dynamic oligopoly model for the prescription drug market. In the model, both firms and patients need to learn the generic qualities via patients' experiences, generic firms' entry decisions are endogenous, but their entry timings depend on a random approval process. I apply the model to examine the impact of shortening the expected generic approval time. Although this policy experiment brings generics to the market sooner, it increases a potential entrant's likelihood of entering a crowded market and hence could reduce the total number of generic entrants and consumer welfare.
ASJC Scopus subject areas
- Economics and Econometrics