Generic-Name Prescription and Perceived Quality in the Demand for Pharmaceuticals in Argentina
Posted: 27 Jun 2007
Pharmaceutical markets are examples of imperfect competition, based on product differentiation associated to perceive quality under a patent scheme. In Argentina, the 25649 law in 2002 defined the "duty to prescribe medicines by the generic name of their active principle", changing the prior normative that allow brand names in prescriptions. The aim of the initiative was to provide the opportunity for substitution based on prices of products therapeutically equivalent, triggering price reductions and higher access to pharmaceuticals. Considering pharmaceutical markets as an array of sub-markets with non-homogeneous characteristics, this paper focuses on the analysis of two therapeutic classes: hypolipemiants and calcium blockers. The objective is to measure the impact of the normative on prices, by using a data set of monthly sales by firm and by brand for the period July 1999-June 2004. By using a discrete choice model of product differentiation, the econometric implementation shows a panel data analysis where each firm's market share is explained by price and non-price characteristics, plus a dummy variable that account for normative switch, corrected by macroeconomic variables (exchange rates and economic activity fluctuations). Among non-market characteristics, the estimations consider age of the product as a proxy or reputation builder, manufacturer position in the local market, and nature of the capital (local or multinational firm). Results show that product age is significant and positive explanation for market share in both classes studied, while foreign capital and industry leadership have the expected sign just for one of the markets considered. Additionally, price is negative and significant at 99%. However price sensitivity to the price increased only about 0.9% and 0.3% for each market because of the normative change, which shows perceived quality as the main explanation for demand, and rejecting the hypothesis of truncated demand function based on loyalty.
Keywords: generic-name prescription, perceived quality, demand, pharmaceutical markets, Argentina
JEL Classification: I11 I18, K32
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