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Regulation, Generic Competition and Pharmaceutical Prices: Theory and Evidence from a Natural Experiment

32 Pages Posted: 11 Feb 2010  

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)

Date Written: December 19, 2007

Abstract

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.

Keywords: Pharmaceuticals, Regulation, Generic Competition

JEL Classification: I11, L65

Suggested Citation

Brekke, Kurt Richard and Holmas, Tor Helge and Straume, Odd Rune, Regulation, Generic Competition and Pharmaceutical Prices: Theory and Evidence from a Natural Experiment (December 19, 2007). NHH Dept. of Economics Discussion Paper No. 39/2007. Available at SSRN: https://ssrn.com/abstract=1550785 or http://dx.doi.org/10.2139/ssrn.1550785

Kurt Richard Brekke (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Tor Helge Holmas

Foundation for Research in Economics and Business Administration (SNF) ( email )

Breiviksveien 40
Bergen, N-5045
Norway

Odd Straume

University of Minho - Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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