Generic Drug Industry Dynamics

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Abstract
Oth the economics literature and the business press suggest that a typical pattern for a "new" industry (or what Jovanovic and MacDonald (1994) call an invention )i s to have an initial phase in which a small number of firms each earn significant profits, followed by a phase in which rapid entry of new firms leads to increased competition and dissipation of some of those profits, often accompanied by a shakeout, whereby only a few large firms remain (espe- cially if subsequent innovations increase the optimal scale). Although this pattern seems to characterize many industries, the length of time during which early movers retain their profits, how prices adjust during the entry process, and the