Effect of Market Entry on Generic Drug Prices: Medicare Data 2007-2022

Using the Medicare Part D drug event (PDE) data from 2007 to 2022, and both fixed effects or random effects at the drug level, we estimate the relationship of competitors and prices within each drug level while controlling for factors across drugs for 3 periods, 2007-11, 2012-15, and 2016-2019. We follow a drug 24 months and 36 months after first generic entry to examine whether the relationship between number of competitors and price would change over time. We find that in recent years new generic markets continue to be competitive. Drug prices fall with increasing number of generic competitors. Prices decline by 20% in markets with about 3 competitors. Prices continue to decline by 70% to 80% relative to the pre-generic entry price in markets of 10 or more competitors following 3 years after first generic entry. We also find that the impact of competition on relative prices are similar for generic drugs first entering the market in the most recent period 2016-2019 to the earlier periods, 2007-11 or 2012-15.