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Consumer Information and Pharmaceutical Prices: Theory and Evidence

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  • Granlund, David

    ()
    (Department of Economics)

  • Rudholm, Niklas

    ()
    (The Swedish Retail Institute (HUI))

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    Abstract

    In this paper, the impact of increased information on brand name and generic pharmaceutical prices is analyzed both theoretically and empirically. The theoretical results show that an increase in information is likely to reduce the price of brand name pharmaceuticals, while the results regarding generics are less clear. In the empirical part of the paper, the introduction of the substitution reform in the Swedish pharmaceuticals market in October 2002 is used as a natural experiment regarding the effects of increased consumer information on pharmaceutical prices. The results clearly show that the reform has lowered the price of both brand name- and generic pharmaceuticals.

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    Bibliographic Info

    Paper provided by HUI Research in its series HUI Working Papers with number 8.

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    Length: 32 pages
    Date of creation: 01 Apr 2007
    Date of revision:
    Publication status: Published as Granlund, David and Niklas Rudholm, 'Consumer Information and Pharmaceutical Prices: Theory and Evidence' in Oxford Bulletin of Economics and Statistics, 2011, pages 230-254.
    Handle: RePEc:hhs:huiwps:0008

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    Postal: HUI Research, Regeringsgatan 60, 103 29 Stockholm, Sweden
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    Related research

    Keywords: Pharmaceutical industry; generic competition; generic drugs; brand name drugs;

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    References

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    1. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    2. Meir Statman, 1981. "The effect of patent expiration on the market position of drugs," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 2(2), pages 61-66, 06.
    3. Salop, Steven & Stiglitz, Joseph E, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 493-510, October.
    4. Nikas Rudholm, 2001. "Entry and the Number of Firms in the Swedish Pharmaceuticals Market," Review of Industrial Organization, Springer, vol. 19(3), pages 351-364, November.
    5. Mats A. Bergman & Niklas Rudholm, 2003. "The Relative Importance of Actual and Potential Competition: Empirical Evidence From the Pharmaceuticals Market," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 455-467, December.
    6. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
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    Citations

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    Cited by:
    1. Granlund, David & Rudholm, Niklas, 2008. "Consumer Loyalty in the Swedish Pharmaceuticals Market," HUI Working Papers 17, HUI Research.
    2. Granlund, David, 2010. "Price and welfare effects of a pharmaceutical substitution reform," Journal of Health Economics, Elsevier, vol. 29(6), pages 856-865, December.
    3. Granlund, David, 2008. "Does Physicians' Compensation Affect the Probability of their Vetoing Generic Substitution?," HUI Working Papers 14, HUI Research.
    4. Granlund, David, 2008. "Does physicians' compensation affect the probability of their vetoing generic substitution?," UmeÃ¥ Economic Studies 729, Umeå University, Department of Economics, revised 26 Mar 2008.

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