Competition in Off-Patent Drug Markets: Issues, Regulation and Evidence

45 Pages Posted: 12 Jun 2008

See all articles by Panos Kanavos

Panos Kanavos

London School of Economics & Political Science (LSE)

Joan Costa-Font

London School of Economics & Political Science (LSE)

Elizabeth Seeley

London School of Economics & Political Science (LSE)

Abstract

In recent years health insurers have placed a great deal of emphasis on the ability of generic medicines to deliver significant savings to overstretched health care budgets due to their lower cost and potential for a more efficient resource allocation. In this paper we study market developments after patent expiry, whether health insurance captures the financial benefits from cheaper generics, and whether regulation and product differentiation, among others, have any power in explaining originator and generic price movements, generic entry and diffusion. We find that health insurance does not capitalize fully or fast enough on the cost advantage of generic medicines, either because generic policies do not encourage their fast uptake, or because generic drug prices are high and frequently tied, directly or indirectly, to originator drug prices. We also find that reference pricing, a particular form of reimbursement regulation, encourages generic entry and reduces generic prices but only marginally. Finally, in generic markets characterized by homogeneous products, we find evidence of product differentiation which is impacting prices upwards rather than downwards. If health insurance is to benefit fully from generic medicines, it ought to encourage faster uptake and price competition, and discourage price-fixing regulation that ties generic prices to those of originator brands.

Suggested Citation

Kanavos, Panos and Costa-Font, Joan and Seeley, Elizabeth, Competition in Off-Patent Drug Markets: Issues, Regulation and Evidence. Economic Policy, Vol. 23, Issue 55, pp. 499-544, July 2008. Available at SSRN: https://ssrn.com/abstract=1144267 or http://dx.doi.org/10.1111/j.1468-0327.2008.00207.x

Panos Kanavos (Contact Author)

London School of Economics & Political Science (LSE)

Houghton Street
London, WC2A 2AE
United Kingdom

Joan Costa-Font

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://https://joancostaifont.org/

Elizabeth Seeley

London School of Economics & Political Science (LSE)

Houghton Street
London, WC2A 2AE
United Kingdom

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