Competition, Regulation, and Entry Timing in Marketing for Pharmaceutical Line Extensions

Pharmaceutical line extensions refer to new formulations of older parent molecules. This dissertation consists of three essays on competition, regulation, and entry in markets for pharmaceutical line extensions.;The first essay estimates the market share that product lines with extensions are able to retain after patent expiration and investigates whether sales and prices of line extensions respond to competition from generic versions of the original formulation. I use a differences-in-differences approach to show that brands with line extensions retain significantly more market share than their unextended counterparts after generic entry. I also demonstrate that competition from generic versions of the original formulation has little effect on sales for line extensions. I instrument for endogenous generic entry, and estimate that the effect of generic entry on extension sales is only 22 to 34 percent as large as the effect of generic entry on sales of the original formulation.;The second essay demonstrates that the current approach to regulating line extensions encourages firms to delay the launch of line extensions. I show that untying the exclusivity period from the approval date would encourage firms to introduce line extensions as soon as possible and would allow regulators to reduce exclusivity periods for line extensions, which increases welfare. I also consider how switching costs influence the firm's entry decision and the duration of the optimal exclusivity period.;The third essay investigates whether entry timing has an effect on market shares that pharmaceutical line extensions achieve after generic versions of the original formulation enter the market. Entry timing is endogenous, so I use exogenous variations in the duration of the FDA approval process as an instrument to identify variation in the timing of entry for line extensions. I estimate the relationship between lead-time---the difference between the entry date for a line extension and the first generic---and market shares and find that entering one month earlier is associated with a 0.6 to 0.8 percentage point increase in market share for line extensions in the two years following generic entry.