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Generic-branded drug competition and the price for pharmaceuticals in procurement auctions

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  • Arvate, Paulo
  • Barbosa, Klenio de Souza
  • Gambardella, Dante

Abstract

This paper studies the effects of generic drug’s entry on bidding behavior of drug suppliers in procurement auctions for pharmaceuticals, and the consequences on procurer’s price paid for drugs. Using an unique data set on procurement auctions for off-patent drugs organized by Brazilian public bodies, we surprisingly find no statistically difference between bids and prices paid for generic and branded drugs. On the other hand, some branded drug suppliers leave auctions in which there exists a supplier of generics, whereas the remaining ones lower their bidding price. These findings explain why we find that the presence of any supplier of generic drugs in a procurement auction reduces the price paid for pharmaceuticals by 7 percent. To overcome potential estimation bias due to generic’s entry endogeneity, we exploit variation in the number of days between drug’s patent expiration date and the tendering session. The two-stage estimations document the same pattern as the generalized least square estimations find. This evidence indicatesthat generic competition affects branded supplier’s behavior in public procurement auctions differently from other markets.

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File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/11322/8/TD%20333%20-%20CMICRO%2018%20-%20Paulo%20Arvate%20-%20Klenio%20Barbosa%20-%20Dante%20Gambardella.pdf
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Bibliographic Info

Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 333.

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Date of creation: 05 Dec 2013
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Handle: RePEc:fgv:eesptd:333

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