Regulation, Generic Competition and Pharmaceutical Prices: Theory and Evidence from a Natural Experiment

Kurt Richard Brekke, Tor Helge Holmas, Odd Rune Straume
2007 Social Science Research Network  
g ge en ne er ri ic c c co om mp pe et ti it ti io on n a an nd d p ph ha ar rm ma ac ce eu ut ti ic ca al l p pr ri ic ce es s: : T Th he eo or ry y a an nd d e ev vi id de en nc ce e f fr ro om m a a n na at tu ur ra al l e ex xp pe er ri im me en nt t Kurt R. Brekke Tor Helge Holmås Odd Rune Straume NIPE WP 1 / 2008 R Re eg gu ul la at ti io on n, , g ge en ne er ri ic c c co om mp pe et ti it ti io on n a an nd d p ph ha ar rm ma ac ce eu ut ti ic ca al l p pr ri ic ce es s: : T Th he eo or
more » ... ry y a an nd d e ev vi id de en nc ce e f fr ro om m a a n na at tu ur ra al l e ex xp pe er ri im me en nt t K Ku ur rt t R R. . B Br re ek kk ke e T To or r H He el lg ge e H Ho ol lm må ås s O Od dd d R Ru un ne e S St tr ra au um me e Abstract We study the impact of regulatory regimes on generic competition and pharmaceutical pricing using a unique policy experiment in Norway, where reference pricing (RP) replaced price cap regulation in 2003 for a sub-sample of off-patent products. We exploit a detailed panel dataset at product level covering a wide set of off-patent drugs before and after the policy reform. Off-patent drugs not subject to reference pricing serve as our control group. We find that RP leads to lower relative prices, with the effect being driven by strong brand-name price reductions, and not increases in generic prices. We also find that RP increases generic competition, resulting in lower brand-name market shares. Finally, we show that RP has a strong negative effect on average prices at molecule level, suggesting significant cost-savings.
doi:10.2139/ssrn.1550785 fatcat:4znxi5kli5cxvjru65z3he2lym