Regulation and Pricing of Pharmaceuticals: Reference Pricing or Price Cap Regulation?

Kurt Brekke (), Astrid L. Grasdal () and Tor Helge Holmås ()
Additional contact information
Astrid L. Grasdal: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Tor Helge Holmås: Institute for Reasearch in Economics and Business Administration, Health Economic Bergen, Postal: Breiviksveien 40, N-5045 Bergen, Norway

No 14/06, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: We study the relationship between regulatory regimes and pharmaceutical firms’ pricing strategies using a unique policy experiment from Norway, which in 2003 introduced a reference price (RP) system called “index pricing” for a sub-sample of off-patent pharmaceuticals, replacing the existing price cap (PC) regulation. We estimate the effect of the reform using a product level panel dataset, covering the drugs exposed to RP and a large number of drugs still under PC regulation in the time before and after the policy change. Our results show that RP significantly reduced both brand-name and generic prices within the reference group, with the effect being stronger for brand-names. We also identify a negative cross-price effect on therapeutic substitutes not included in the RP-system. In terms of policy implications, the results suggest that RP is more effective than PC regulation in lowering drug prices, while the cross-price effect raises a concern about patent protection.

Keywords: Pharmaceuticals; Price Regulation; Branded-Generic competition. (search for similar items in EconPapers)
JEL-codes: I11 L13 L51 L65 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2006-09-19
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Regulation and pricing of pharmaceuticals: Reference pricing or price cap regulation? (2009)
Working Paper: Regulation and Pricing of Pharmaceuticals: Reference Pricing or Price Cap Regulation? (2007)
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