Market Power, Quantity, and Branded Revenues. The results from our empirical tests of hypotheses 1 and 2 are presented in Table 1. Table 1: Results of Empirical Tests Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 log total grams log brand dollars Patent Expired 0.067 0.093 0.249 -0.175 -0.148 -0.018 Hospital Product*Patent [0.020]*** [0.021]*** [0.105]** [0.029]*** [0.029]*** [0.113] Expired -0.158 -0.165 [0.048]*** [0.087]* Share Insured*Patent Expired -0.344 -0.492 [0.135]** [0.175]*** Constant 12.323 12.322 12.572 15.968 15.968 16.272 [0.020]*** [0.020]*** [0.033]*** [0.024]*** [0.024]*** [0.040]*** Observations 5002 5002 2488 5002 5002 2488 Number of drugs 95 95 43 95 95 43 Notes: Robust standard errors in brackets. Standard errors are adjusted for clustering at the drug level. Other covariates in the model include drug fixed effects, cubic polynomial in months since patent expiration and cubic polynomial in months since patent expiration interacted with indicator for hospital drugs or percent of expenses borne by insurer. * significant at 10%; ** significant at 5%; *** significant at 1% Models 1 and 4 present benchmark results for the average drug. At patent expiration, the total quantity sold increases by 6.7% for the mean drug, while branded drug revenues decline by 17.5%. Models 2 and 5 demonstrate that, for hospital-administered products, quantity rises by 16% points less, and branded revenues fall by 17% more. For hospital products, patent expiration is predicted to lower quantity by 6.5%, which is not statistically different from zero, and lower branded revenues by 31%. The significant differences between hospital and other products, and the insignificant change in quantity for hospital products, are all consistent with Hypotheses 1 and 2. Models 3 and 6 repeat this analysis using share of expenses paid by insurers as an alternative measure of how well a molecule is insured. The coefficient estimates imply that, for molecules paid at the first quartile of insurance generosity (41% of expenses paid by insurers), patent expiration raises quantity by 11%, reduces branded revenues by 22%. In contrast, for molecules at the third quartile of insurance generosity (78% of expenses paid by insurers), patent expiration leaves quantity statistically unchanged (the point estimate is -2.0%), but lowers branded revenues by 40%. These results are also consistent with Hypotheses 1 and 2.
