We study the effect of the degree of exclusivity for the lowest bidder on the average price of generic pharmaceuticals in the short and long terms. Our results indicate that a 1‐percentage‐point gain in market share of the lowest bidder reduces average costs by 0.2% in the short term and 0.8% in the long term, but also reduces the number of firms by 1%. We find that reducing the number of firms has a strong positive (and hence counteracting) effect on average prices, a 1% reduction raising prices by approximately 1%.