Generic substitution policy, prices and market structure: evidence from a quasi-experiment in Finland

Joni Hokkanen, Aki Kangasharju (aki.kangasharju@etla.fi), Ismo Linnosmaa and Hannu Valtonen

No 35, Working Papers from VATT Institute for Economic Research

Abstract: The present paper evaluates the quantitative impact of a pharmaceutical reform on pharmaceutical prices. A generic substitution policy was introduced in Finland in 2003 to contain rising pharmaceutical expenditure. After the reform pharmacists were obliged to propose a cheaper alternative to a prescribed pharmaceutical product whenever a substitutable product was available. There were three possible channels through which the price effect might have been transmitted. First, the policy might have affected manufacturers' pricing behaviour for existing pharmaceutical products. Second, firms might have introduced new product variants of existing drugs to the market in the form of new generics or different package sizes. Third, the policy might have affected prices through the market structure, with more firms offering new product variants entering the market.

Keywords: pharmaceuticals, generic substitution, difference-in-differences, pretreatment trends, therapeutic competition, Public services, Julkiset palvelut, Effectiveness of public services, Julkisten palvelujen vaikuttavuus, C230 - Econometric Methods: Single Equation Models; Single Variables: Models with Panel Data, L110 - Production, Pricing, and Market Structure; Size Distribution of Firms (Concentration, Product Differentiation, Entry and Exit), L650 - Chemicals; Rubber; Drugs; Biotechnology, (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-com, nep-ipr and nep-pr~
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