What If There Was a Stronger Pharmaceutical Price Competition in Spain? When Regulation Has a Similar Effect to Collusion

XREAP No. 2011-02

74 Pages Posted: 3 Jun 2011  

Iván Moreno-Torres

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: May 1, 2011

Abstract

This paper examines statins competition in the Spanish pharmaceutical market, where prices are highly regulated, and simulates a situation in which there is unrestricted price competition. A nested logit demand model is estimated with a panel of monthly data for pharmaceuticals prescribed from 1997 to 2005. The simulation indicates that the regulation of prices is similar in its effects to cooperation among producers, since the regulated prices are close to those that would be observed in a scenario of perfect collusion. Freedom to set prices and a regulatory framework with appropriate incentives would result in a general reduction in prices and may make the current veiled competition in the form of discounts to pharmacists become more visible. The decrease in prices would be partially offset by an increase in consumption but the net effect would be an overall decrease in expenditure. The counterfactual set-up would also lead to important changes in the market shares of both manufacturers and active ingredients, and a reversal of generic drugs. Therefore, pro-competitive regulation would be welfareenhancing but would imply winners and losers.

Keywords: pharmaceutical industry, statin drugs, competition, regulation

JEL Classification: I11, I18, L13, L65

Suggested Citation

Moreno-Torres, Iván, What If There Was a Stronger Pharmaceutical Price Competition in Spain? When Regulation Has a Similar Effect to Collusion (May 1, 2011). XREAP No. 2011-02. Available at SSRN: https://ssrn.com/abstract=1856872 or http://dx.doi.org/10.2139/ssrn.1856872

Iván Moreno-Torres (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

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