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Quality Regulation and Competition: Evidence from Pharmaceutical Markets

Author

Listed:
  • Jesus Juan Pablo Atal

    (University of Pennsylvania)

  • Jose´ Ignacio Cuesta

    (University of Chicago)

  • Morten Sæthre

    (Norwegian School of Economics)

Abstract

Quality regulation attempts to ensure quality and to foster price competition by reducing vertical di?erentiation, but may also have unintended consequences through its e?ects on market structure. We study these e?ects in the context of pharmaceutical bioequivalence, which is the primary quality standard for generic drugs. Exploiting the staggered phase-in of bioequivalence requirements in Chile, we show that stronger quality regulation decreased the number of drugs in the market by 25%, increased average paid prices by 10%, decreased total sales by 20%, and did not have a significant e?ect on observed outcomes related to drug quality. These adverse e?ects were concentrated among small markets. Our results suggest that the intended e?ects of quality regulation on price competition through increased (perceived) quality of generics were overturned by adverse competitive e?ects arising from the costs of complying with the regulation.

Suggested Citation

  • Jesus Juan Pablo Atal & Jose´ Ignacio Cuesta & Morten Sæthre, 2019. "Quality Regulation and Competition: Evidence from Pharmaceutical Markets," PIER Working Paper Archive 19-017, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  • Handle: RePEc:pen:papers:19-017
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    Cited by:

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    2. Geng, Hao & Shi, Ce Matthew, 2024. "Health policy, price regulation, and innovation: Evidence from China’s vaccine industry," Journal of Development Economics, Elsevier, vol. 167(C).
    3. Chatterjee, Chirantan & Gupta, Samarth, 2024. "Public entry and private prices: New evidence from Indian pharmaceutical markets," Journal of Economic Behavior & Organization, Elsevier, vol. 219(C), pages 473-489.

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    More about this item

    Keywords

    Aggregate quality regulation; competition; bioequivalence; generic pharmaceuticals;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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