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

32 Pages Posted: 11 Feb 2010

See all articles by Kurt Richard Brekke

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

CESifo (Center for Economic Studies and Ifo Institute); University of Minho - Economic Policies Research Unit (NIPE)

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 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 Rune Straume

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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

Campus de Gualtar
Braga, 4710-057
Portugal

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