Competition in prescription drug markets: the roles of trademarks, advertising, and generic names

Roger Feldman, Félix Lobo

We take on two subjects of controversy among economists-advertising and trademarks-in the context of the market for generic drugs. We outline a model in which trademarks for drug names reduce search costs but increase product differentiation. In this particular framework, trademarks may not benefit consumers. In contrast, the generic names of drugs or "International Nonproprietary Names" (INN) have unquestionable benefits in both economic theory and empirical studies. We offer a second model where advertising of a brand-name drug creates recognition for the generic name. The monopoly patent-holder advertises less than in the absence of a competitive spillover.