Determining the price of a drug when competition sets in
Common wisdom has it that a company entering the market with a follow-on drug needs to price its product at a discount to its first-in-class competitor drug. The current edition of the Bienentanz Buzz Letter reports on a new study based on empirical data and economic theory which suggests that this downward price pressure is to be expected only if the products are perfect or very close substitutes. If the brands are moderately differentiated with respect to their target groups, both companies may have the leeway (even without colluding) to charge higher prices and still sell their products successfully. Extreme differentiation to the point that there is no competition between the drugs at all, however, will not lead to any price effects.
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