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Margins and Market Shares:Pharmacy Incentives for Generic Substitution

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Abstract

We study the impact of product margins on pharmacies. incentive to promote generics instead of brand-names. First, we construct a theoretical model where phar-macies can persuade patients with a brand-name prescription to purchase a generic version instead. We show that pharmacies.substitution incentives are determined by relative margins and relative patient copayments. Second, we exploit a unique product level panel data set, which contains information on sales and prices at both producer and retail level. In the empirical analysis, we .nd a strong relationship between the margins of brand-names and generics and their market shares. In terms of policy implications, our results suggest that pharmacy incentives are crucial for promoting generic sales.

Suggested Citation

  • Kurt R. Brekke & Tor Helge Holmås & Odd Rune Straume, 2010. "Margins and Market Shares:Pharmacy Incentives for Generic Substitution," NIPE Working Papers 20/2010, NIPE - Universidade do Minho.
  • Handle: RePEc:nip:nipewp:20/2010
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    1. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM: Estimation and testing," Stata Journal, StataCorp LP, vol. 3(1), pages 1-31, March.
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    Cited by:

    1. Herr, A. & Suppliet, M., 2011. "Co-Payment Exemptions and Reference Prices: an Empirical Study of Pharmaceutical Prices in Germany," Health, Econometrics and Data Group (HEDG) Working Papers 11/18, HEDG, c/o Department of Economics, University of York.
    2. Brekke, Kurt R. & Canta, Chiara & Straume, Odd Rune, 2016. "Reference pricing with endogenous generic entry," Journal of Health Economics, Elsevier, pages 312-329.
    3. Aida Isabel Tavares, 0. "Generic substitution policy, an incentive approach," Computational and Mathematical Organization Theory, Springer, vol. 0, pages 1-22.
    4. Skipper, Niels & Vejlin, Rune, 2015. "Determinants of generic vs. brand drug choice: Evidence from population-wide Danish data," Social Science & Medicine, Elsevier, vol. 130(C), pages 204-215.
    5. Dubois, Pierre & Lasio, Laura, 2014. "Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals," TSE Working Papers 14-471, Toulouse School of Economics (TSE), revised Jul 2017.
    6. Bergman , Mats A. & Granlund, David & Rudholm, Niklas, 2016. "Squeezing the last drop out of your suppliers: an empirical study of market-based purchasing policies for generic pharmaceuticals," Umeå Economic Studies 921, Umeå University, Department of Economics.
    7. Brekke, Kurt R. & Holmås, Tor Helge & Straume, Odd Rune, 2015. "Price regulation and parallel imports of pharmaceuticals," Journal of Public Economics, Elsevier, vol. 129(C), pages 92-105.
    8. Vogler, Sabine & Habimana, Katharina & Arts, Danielle, 2014. "Does deregulation in community pharmacy impact accessibility of medicines, quality of pharmacy services and costs? Evidence from nine European countries," Health Policy, Elsevier, vol. 117(3), pages 311-327.
    9. repec:spr:comaot:v:23:y:2017:i:2:d:10.1007_s10588-016-9223-3 is not listed on IDEAS
    10. Bergman, Mats & Granlund, David & Rudholm, Niklas, 2016. "Squeezing the last drop out of your suppliers: an empirical study of market-based purchasing policies for generic pharmaceuticals," HUI Working Papers 116, HUI Research.
    11. Granlund, David, 2012. "The effect of pharmacies’ right to negotiate discounts on the market share of parallel imported pharmaceuticals," HUI Working Papers 75, HUI Research.

    More about this item

    Keywords

    Pharmaceuticals; Pharmacies; Generic Substitution;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • 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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