TY  - JOUR
AU  - Griliches,Zvi
AU  - Cockburn,Iain
TI  - Generics and New Goods in Pharmaceutical Price Indexes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4272
PY  - 1995
Y2  - January 1995
UR  - http://www.nber.org/papers/w4272
L1  - http://www.nber.org/papers/w4272.pdf
N1  - Author contact info:
Zvi Griliches
E-Mail: N/A user is deceased

Iain M. Cockburn
School of Management
Boston University
595 Commonwealth Ave
Boston, MA 02215
Tel: 617/588-1486
Fax: 815/550-2353
E-Mail: cockburn@bu.edu
M2  - featured in NBER digest on 1993-03-01
AB  - We examine the issue of new goods and price indexes for the important and tractable case of generic and branded drugs. By treating generics as entirely distinct goods and "linking them in" to indexes with fixed weights, the standard price indexes fail to reflect the substantial welfare gains to those consumers who, like the FDA, regard generic and branded versions of a drug as being perfect substitutes. We discuss the treatment of heterogenous consumers in constructing aggregate price indexes, and then, using detailed data on wholesale prices of two anti-infective drugs, present calculations of various alternatives to the official indexes. These reflect both heterogeneity of tastes for brandedness, and also the empirically important phenomenon of diffusion of generic drugs into the market following patent expiration. We find very significant differences: for one of the drugs studied, the standard price index rose by 14% over the sample period, while our preferred alternative index fell by 48%.
ER  -