Markups and fixed costs in generic and off-patent drug markets. 

Review of Economics and Statistics 1-28.

Available at: https://doi.org/10.1162/rest_a_01130

Commentary

There appears to be a wide variation in the prices of drugs in countries with comparable quality standards.

Under monopoly, there is a situation where the price of unpatented generic drugs is at least four times higher in the United States than in comparable English-speaking high-income countries. Because prices for unpatented drugs are assumed to be equal or lower when there are five or more competitors, the researchers' analysis shows that markup differences in the United States are driven primarily by the market dominance of drug suppliers, not wholesalers or pharmacies.

In addition, they found that implicit entry costs are much higher in the U.S., limiting free entry, a traditional mechanism for reducing market dominance.