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Patent protection, creative destruction, and generic entry in pharmaceuticals: Evidence from patent and pricing data

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Abstract

This paper merges patent citation data with data on pharmaceutical patent expirations, generic entry, and pricing to explore the effects of observable patent characteristics on off-patent and on-patnet pharmaceutical pricing. Using a sample of drug patents facing generic entry in the 1990s, I find that the price of branded drugs increased on average in the face of generic entry. Importantly, I find that the number of patent citations that a drug receives from other firms is correlated with a decrease in markup and a decrease in the duration of the markup. Conversely, self-citations are correlated with higher prices and slower decay in prices. The results indicate that patent citations may signal the degree of inter-molecule substitution. And, importantly, self-citations may indicate a degree of cumulative patenting that enables a firm to effectively extend or strengthen the original patent protection. This research takes a step forward in understanding the distinction between “positive” citations and “negative” citations related to creative destruction.

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  • Marco, Alan C., 2006. "Patent protection, creative destruction, and generic entry in pharmaceuticals: Evidence from patent and pricing data," Vassar College Department of Economics Working Paper Series 83, Vassar College Department of Economics.
    • Handle: RePEc:vas:papers:83
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    1. Hall, B. & Jaffe, A. & Trajtenberg, M., 2001. "The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools," Papers 2001-29, Tel Aviv.
    2. Caroline Hussler, 2004. "Culture and knowledge spillovers in Europe: New perspectives for innovation and convergence policies?," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(6), pages 523-541.
    3. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
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