Quality Regulation and Competition: Evidence from Pharmaceutical Markets

75 Pages Posted: 29 Sep 2019

See all articles by Juan Atal

Juan Atal

University of Pennsylvania

José Ignacio Cuesta

Morten Saethre

Norwegian School of Economics (NHH)

Date Written: July 15, 2019

Abstract

Quality regulation attempts to ensure quality and to foster price competition by reducing vertical differentiation, but may also have unintended consequences through its effects on market structure. We study these effects in the context of pharmaceutical bioequivalence, which is the primary quality standard for generic drugs. Exploiting the staggered phase-in of bioequivalence requirements in Chile, we show that stronger quality regulation decreased the number of drugs in the market by 25%, increased average paid prices by 10%, decreased total sales by 20%, and did not have a significant effect on observed outcomes related to drug quality. These adverse effects were concentrated among small markets. Our results suggest that the intended effects of quality regulation on price competition through increased (perceived) quality of generics were overturned by adverse competitive effects arising from the costs of complying with the regulation.

Keywords: quality regulation, competition, bioequivalence, generic pharmaceuticals

JEL Classification: I11, L11, L15

Suggested Citation

Atal, Juan and Cuesta, José Ignacio and Saethre, Morten, Quality Regulation and Competition: Evidence from Pharmaceutical Markets (July 15, 2019). PIER Working Paper No. 19-017 (2019), Available at SSRN: https://ssrn.com/abstract=3456729 or http://dx.doi.org/10.2139/ssrn.3456729

Juan Atal (Contact Author)

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Morten Saethre

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

No contact information is available for José Ignacio Cuesta

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