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Price regulation and generic competition in the pharmaceutical market

Author

Listed:
  • Dalen, Dag Morten

    () (Handelshøyskolen BI)

  • Habeth, Tonje

    (Handelshøyskolen BI)

  • Strøm, Steinar

    () (Department of Economics, University of Oslo)

Abstract

In March 2003 the Norwegian government implemented yardstick based price regulation schemes on a selection of drugs experiencing generic competition. The retail price cap, termed “index price”, on a drug (chemical substance) was set equal to the average of the three lowest producer prices on that drug, plus a fixed wholesale and retail margin. This is supposed to lower barriers of entry for generic drugs and to trigger price competition. Using monthly data over the period 1998-2004 for the 6 drugs (chemical entities) included in the index price system, we estimate a structural model enabling us to examine the impact of the reform on both demand and market power. Our results suggest that the index price helped to increase the market shares of generic drugs and succeeded in triggering price competition.

Suggested Citation

  • Dalen, Dag Morten & Habeth, Tonje & Strøm, Steinar, 2009. "Price regulation and generic competition in the pharmaceutical market," HERO On line Working Paper Series 2006:1, Oslo University, Health Economics Research Programme.
  • Handle: RePEc:hhs:oslohe:2006_001
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    File URL: http://www.hero.uio.no/publicat/2006/HERO2006_1.pdf
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    References listed on IDEAS

    as
    1. Ernst R. Berndt & Robert S. Pindyck & Pierre Azoulay, 2003. "Consumption Externalities and Diffusion in Pharmaceutical Markets: Antiulcer Drugs," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 243-270, June.
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    6. Hudson, John, 2000. "Generic take-up in the pharmaceutical market following patent expiry: A multi-country study," International Review of Law and Economics, Elsevier, vol. 20(2), pages 205-221, June.
    7. Scott Morton, Fiona M., 2000. "Barriers to entry, brand advertising, and generic entry in the US pharmaceutical industry," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1085-1104, October.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Lászlo Tóthfalusi & László Endrényi & Shein-Chung Chow, 2014. "Statistical and regulatory considerations in assessments of interchangeability of biological drug products," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(1), pages 5-11, May.
    2. Brekke, Kurt R. & Grasdal, Astrid L. & Holms, Tor Helge, 2009. "Regulation and pricing of pharmaceuticals: Reference pricing or price cap regulation?," European Economic Review, Elsevier, vol. 53(2), pages 170-185, February.
    3. Carine Franc & Laurent Granier & Sébastien Trinquard, 2013. "Tarif forfaitaire de responsabilité : quels impacts sur le pharmacien ?," Working Papers halshs-00800457, HAL.
    4. Ivan Moreno-Torres, 2011. "What if there was a stronger pharmaceutical price competition in Spain? When regulation has a similar effect to collusion," Working Papers XREAP2011-02, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.
    5. Liu, Ya-Ming & Yang, Yea-Huei Kao & Hsieh, Chee-Ruey, 2012. "Regulation and competition in the Taiwanese pharmaceutical market under national health insurance," Journal of Health Economics, Elsevier, vol. 31(3), pages 471-483.
    6. Kanavos, Panos, 2014. "Measuring performance in off-patent drug markets: A methodological framework and empirical evidence from twelve EU Member States," Health Policy, Elsevier, vol. 118(2), pages 229-241.
    7. Dag Dalen & Kari Furu & Marilena Locatelli & Steinar Strøm, 2011. "Generic substitution: micro evidence from register data in Norway," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), pages 49-59.
    8. Ville Aalto-Setälä, 2008. "The impact of generic substitution on price competition in Finland," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 9(2), pages 185-191, May.
    9. Ivan Moreno-Torres, 2011. "Generic drugs in Spain: price competition vs. moral hazard," Working Papers XREAP2011-04, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.
    10. Fernando Antoñanzas & Carmelo Juárez-Castelló & Roberto Rodríguez-Ibeas, 2011. "Innovation, loyalty and generic competition in pharmaceutical markets," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 2(1), pages 75-95, March.
    11. Håkonsen, Helle & Horn, Anne Marie & Toverud, Else-Lydia, 2009. "Price control as a strategy for pharmaceutical cost containment--What has been achieved in Norway in the period 1994-2004?," Health Policy, Elsevier, vol. 90(2-3), pages 277-285, May.

    More about this item

    Keywords

    Discrete choice; demand for pharmaceuticals; monopolistic competition; evaluation of yardstick based price regulation;

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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