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Price competition in pharmaceuticals – evidence from 1303 Swedish markets

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Abstract

We study the short- and long-term price effects of the number of competing firms, using panel-data on 1303 distinct pharmaceutical markets for 78 months. We use actual transaction prices in an institutional setting with little scope for non-price competition and where simultaneity problems can be addressed effectively. In the long term, the price of generics is found to decrease by 81% when the number of firms selling generics with the same strength, form and similar package size is increased from 1 to 10. Nearly only competition at this fine-grained level matters; the price effect of firms selling other products with the same active substance, but with different package size, form, or strength, is only a tenth as large. Half of the price reductions take place immediately and 70% within three months. Also, prices of originals are found to react to competition, but far less and much slower.

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  • Granlund, David & Bergman, Mats A., 2017. "Price competition in pharmaceuticals – evidence from 1303 Swedish markets," Umeå Economic Studies 952, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:0952
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    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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