The effects of price regulation of pharmaceutical industry margins: A structural estimation for anti-ulcer drugs in France
The objective of this paper is to study the effects of price regulation on competition in the pharmaceutical industry. We provide a method allowing to identify margins in an oligopoly price competition game even when prices may not be freely chosen by Â…firms. We use our identiÂ…cation strategy to study the effects of regulatory constraints on prices in the pharmaceutical industry which is heavily regulated in particular in France. We use data from the US, Germany and France to identify country speciÂ…c demand models and then recover price cost margins under the regulated price setting constraints on the French market. To do so, we estimate a structural model on the market for anti-ulcer drugs in France that allows us to explore the drivers of demand, to identify whether regulation really affects margins and prices and to relate regulatory reforms to industry pricing equilibrium. We provide the fiÂ…rst structural estimation of price-cost margins on a regulated market with price constraints and show how to identify unknown possibly binding constraints thanks to three different markets (US, German and France) with varying regulatory constraints. The identiÂ…ed margins show that margins have increased over time in France but that fiÂ…rms were specially constrained in price setting after 2004.
|Date of creation:||Jul 2012|
|Contact details of provider:|| Postal: HEDG/HERC, Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom|
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- Brekke, Kurt R. & Grasdal, Astrid L. & Holmås, Tor Helge, 2006.
"Regulation and Pricing of Pharmaceuticals: Reference Pricing or Price Cap Regulation?,"
Working Papers in Economics
14/06, University of Bergen, Department of Economics.
- 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.
- Kurt R. Brekke & Astrid L. Grasdal & Tor Helge Holmås, 2007. "Regulation and Pricing of Pharmaceuticals: Reference Pricing or Price Cap Regulation?," CESifo Working Paper Series 2059, CESifo Group Munich.
- Thomas Aronsson & Mats Bergman & Niklas Rudholm, 2001. "The Impact of Generic Drug Competition on Brand Name Market Shares – Evidence from Micro Data," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 19(4), pages 423-433, December.
- Kurt R. Brekke & Tor Helge Holmås & Odd Rune Straume, 2008. "Regulation, generic competition and pharmaceutical prices: Theory and evidence from a natural experiment," NIPE Working Papers 01/2008, NIPE - Universidade do Minho.
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