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Consumer Information and Pharmaceutical Prices: Theory and Evidence

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Author Info
Granlund, David () (Department of Economics, Umeå University)
Rudholm, Niklas () (Department of Economics, Umeå University)
Abstract

In this paper, the impact of increased consumer 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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Publisher Info
Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 709.

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Length: 32 pages
Date of creation: 23 Apr 2007
Date of revision:
Handle: RePEc:hhs:umnees:0709

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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
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Web page: http://www.econ.umu.se/
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Related research
Keywords: Pharmaceutical industry; generic competition; generic drugs; brand name drugs;

Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
  2. Steven Salop & Joseph Stiglitz, 1977. "Bargains and ripoffs: a model of monopolistically competitive price dispersion," Special Studies Papers 94, Board of Governors of the Federal Reserve System (U.S.).
    Other versions:
  3. Mark V. Pauly & Mark A. Satterthwaite, 1981. "The Pricing of Primary Care Physicians' Services: A Test of the Role of Consumer Information," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 488-506, Autumn. [Downloadable!] (restricted)
  4. Mats A. Bergman & Niklas Rudholm, 2003. "The Relative Importance of Actual and Potential Competition: Empirical Evidence From the Pharmaceuticals Market," Journal of Industrial Economics, Blackwell Publishing, vol. 51(4), pages 455-467, December. [Downloadable!] (restricted)
  5. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Granlund, David, 2008. "Does Physicians' Compensation Affect the Probability of their Vetoing Generic Substitution?," HUI Working Papers 14, The Swedish Retail Institute (HUI). [Downloadable!]
  2. Granlund, David & Rudholm, Niklas, 2008. "Consumer Loyalty in the Swedish Pharmaceuticals Market," HUI Working Papers 17, The Swedish Retail Institute (HUI). [Downloadable!]
  3. 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. [Downloadable!]
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