![]() (The ratio of the generic‐price reduction attributable to rising between‐substance competition to the generic‐price reduction attributable to rising within‐substance competition also happens to be 42%.) A striking finding is that the entry of imitators has no effect on the prices of brand‐name drugs, but the entry of innovators has a significant negative effect on the prices of generic drugs in the same ATC4 chemical subgroup. We estimate that the 1985–2005 increase in the number of substances ever registered in a drug's ATC4 chemical subgroup reduced the 2017 price of generic drugs by 42%. (There is also little evidence for an effect of within‐substance competition on brand‐name drug prices.) However, between‐substance competition has a significant negative effect on generic drug prices. (2021), which does not rely on, and allows us to test for, “parallel trends.” Between‐substance competition does not appear to have any effect on brand‐name drug prices, although our inability to fully account for rebates may bias the estimates towards zero. The second method, based on micro data, is estimation using the DID_MULTIPLEGT procedure developed by de Chaisemartin et al. The first method is standard 2‐way fixed effects estimation based on aggregate data. Two methods are used to estimate the effects of between‐substance and within‐substance competition on those variables. The primary objective of this study is to assess the impact of the entry of new drugs in a drug's therapeutic class on branded drug prices, generic drug prices, and the generic market share, using publicly‐available US data for the period 1997–2017. There have been numerous econometric studies of the effect of within‐substance competition on drug prices, but empirical evidence about the effect of between‐substance competition is far more limited. ![]() ![]() In addition to competition among producers of the same chemical substance (“within‐substance competition”), there may be competition among producers of different chemical substances in the same chemical subgroup (“between‐substance competition”). There are several types of pharmaceutical competition. ![]()
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