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Brand-Name and Generic Drug Pricing in a Regulated Environment: Findings from Canada

Author

Listed:
  • Zhe Ren
  • Ingrid Sketris
  • Kuan Xu

    () (Department of Economics, Dalhousie University)

Abstract

The“generic competition paradox” refers to the phenomenon that off-patent brand-name drug manufacturers appear to be able to insulate themselves from generic drug competition in maintaining their market shares and profitability. While the existing theoretical work provides some plausible explanations for this paradox based on so-called product differentiation, we note that this literature does not pay full attention to changes in a regulated environment. Canada provides the context for studying drug manufacturers’ price-setting and product differentiation decisions in a regulated market. In this paper, we attempt to fill the void in the literature by incorporating changes in patient preference and government reimbursement policies into our theoretical analysis. We conduct empirical analysis of the relationship between the drug price dynamics and the complex institutions and changing market places of the pharmaceutical industry. The theoretical and empirical work show that the difference in perceived quality between brand-name and generic drugs, rate of copay, and generic-substitution policy can influence brand-name drug price premiums.

Suggested Citation

  • Zhe Ren & Ingrid Sketris & Kuan Xu, 2012. "Brand-Name and Generic Drug Pricing in a Regulated Environment: Findings from Canada," Working Papers daleconwp2011-04, Dalhousie University, Department of Economics.
  • Handle: RePEc:dal:wpaper:daleconwp2011-04
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    References listed on IDEAS

    as
    1. Drummond, Michael F. & Sculpher, Mark J. & Torrance, George W. & O'Brien, Bernie J. & Stoddart, Greg L., 2005. "Methods for the Economic Evaluation of Health Care Programmes," OUP Catalogue, Oxford University Press, edition 3, number 9780198529453.
    2. Brekke, Kurt R. & Konigbauer, Ingrid & Straume, Odd Rune, 2007. "Reference pricing of pharmaceuticals," Journal of Health Economics, Elsevier, vol. 26(3), pages 613-642, May.
    3. Ernst R. Berndt, 2002. "Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 45-66, Fall.
    4. Comanor, William S, 1986. "The Political Economy of the Pharmaceutical Industry," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1178-1217, September.
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