Insurance in vertically differentiated repair markets

In vertically differentiated repair markets with insured customers, insurance coverage increases price level, entry, and the high quality provider’s profits. In the market for pharmaceuticals, this should be taken into account when calculating the extent of patent periods. ► An incumbent faces entry by competitors in a market with insured consumers. ► Insurance coverage increases price level, entry and the incumbent’s profits. ► Ex post moral hazard increases entry and profits but does not affect the price level. ► Results should be considered when calculating patent periods for brand-name drugs.