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Margins and Market Shares: Pharmacy Incentives for Generic SubstitutionKurt Richard BrekkeNorwegian School of Economics (NHH) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Tor Helge HolmasUniversity of Bergen - Department of Economics Odd Rune StraumeUniversity of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) July 15, 2010 NHH Dept. of Economics Discussion Paper No. 18/2010 Abstract: We study the impact of product margins on pharmacies' incentive to promote generics instead of brand-names. First, we construct a theoretical model where pharmacies can persuade patients with a brand-name prescription to purchase a generic version instead. We show that pharmacies' substitution incentives are determined by relative margins and relative patient copayments. Second, we exploit a unique product level panel data set, which contains information on sales and prices at both producer and retail level. In the empirical analysis, we find a strong relationship between the margins of brand-names and generics and their market shares. In terms of policy implications, our results suggest that pharmacy incentives are crucial for promoting generic sales.
Number of Pages in PDF File: 38 Keywords: Pharmaceuticals, Pharmacies, Generic Substitution JEL Classification: I11, I18, L13, L65 working papers seriesDate posted: August 20, 2010 ; Last revised: October 28, 2010Suggested CitationContact Information
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