Rx‐to‐OTC Switch, Market Exclusivity, and Consumer Welfare: A Study of the US Anti‐Ulcer Drug Markets

ABSTRACT We study the US Anti‐Ulcer Drug market, where market exclusivity is granted to the first over‐the‐counter (OTC) drug independent of prescription drugs' patent expiry. We show that due to the interplay of incentives in the prescription and OTC drug markets, compared to a world with no market exclusivity policy, the status quo design reduces consumer welfare by 1.6 billion USD, as it causes many firms to delay entry into the OTC drug market until prescription drug patents expire. An alternative policy linking OTC exclusivity provision to prescription drug patent expiry dates improves drug access and increases consumer welfare by 3.4 billion USD.