BioMed Pharmaceutical has held a patent on an important heart medication called Heartex, but the patent will expire in the coming year. After the patent expires, other firms can legally sell the same medication as a generic drug product. What will happens to the demand for Heartex and to the Lerner index for this product as the generic drugs enter the market?

Question

Quizplus · Accepted Answer

As generic drugs enter the market, the competition increases, making the demand for Heartex more elastic. This means that consumers will have more substitute products to choose from, which will affect the demand for Heartex. As a result, the Lerner index, which measures the degree of market power a firm has, will decline.

BioMed Pharmaceutical Has Held a Patent on an Important Heart