Regulation, Generic Competition and Pharmaceutical Prices: Theory and Evidence from a Natural Experiment
Kurt Richard Brekke
Norwegian School of Economics (NHH) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)
Tor Helge Holmas
Foundation for Research in Economics and Business Administration (SNF)
Odd Rune Straume
University of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute)
December 19, 2007
NHH Dept. of Economics Discussion Paper No. 39/2007
We study the impact of regulatory regimes on generic competition and pharmaceutical pricing using a unique policy experiment in Norway, where reference pricing (RP) replaced price cap regulation in 2003 for a sub-sample of off-patent products. We exploit a detailed panel dataset at product level covering a wide set of off-patent drugs before and after the policy reform. Off-patent drugs not subject to reference pricing serve as our control group. We find that RP leads to lower relative prices, with the effect being driven by strong brand-name price reductions, and not increases in generic prices. We also find that RP increases generic competition, resulting in lower brand-name market shares. Finally, we show that RP has a strong negative effect on average prices at molecule level, suggesting significant cost-savings.
Number of Pages in PDF File: 32
Keywords: Pharmaceuticals, Regulation, Generic Competition
JEL Classification: I11, L65
Date posted: February 11, 2010
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