Entry Liberalisation and Price Competition in the Portuguese Over-the-Counter Drug Market

31 Pages Posted: 28 Jan 2019

See all articles by Ana Moura

Ana Moura

Tilburg University

Pedro P. Barros

Universidade Nova de Lisboa

Date Written: January 16, 2019

Abstract

In the last two decades, many European countries have allowed Over-the-Counter (OTC) drugs to be sold outside pharmacies. This was expected to lower retail prices through increased competition. However, evidence on price reductions is scarce.

We assess the impact on OTC prices associated with the entry of supermarkets and non-pharmacy outlets in the OTC market, using a difference-in-differences strategy. We use price data on five popular OTC drugs for all OTC retailers located in Lisbon for three distinct points in time (2006, 2010, and 2015).

We find that competitive pressure in the market is mainly exerted by supermarkets, which charge, on average, 20% lower prices than pharmacies. The entry of a supermarket among the main competitors of a retailer is associated with an average 4% to 5% decrease in prices. Additional results from a reduced-form entry model and a propensity score matching difference-in-differences approach suggest that these effects are causal.

Keywords: over-the-counter drugs, pharmaceutical market, market liberalisation, price competition, difference-in-differences, propensity score matching

JEL Classification: I11, I18, L11

Suggested Citation

Moura, Ana and Pita Barros, Pedro Luis, Entry Liberalisation and Price Competition in the Portuguese Over-the-Counter Drug Market (January 16, 2019). Available at SSRN: https://ssrn.com/abstract=3316957 or http://dx.doi.org/10.2139/ssrn.3316957

Ana Moura (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Pedro Luis Pita Barros

Universidade Nova de Lisboa ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal
+351 21 383 3624 (Phone)
+351 21 388 6073 (Fax)

HOME PAGE: http://ppbarros.fe.unl.pt

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