Generic Scrip Share and the Price of Brand-Name Drugs: The Role of the Consumer

John Rizzo and Richard Zeckhauser

No 11431, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Generic drug utilization has risen dramatically, from 19% of scrips in 1984 to 47% in 2001, thus bringing significant direct dollar savings. Generic drug use may also yield indirect savings if it lowers the average price of those brand-name drugs that are still purchased. Prior work indicates - and we confirm - that generic competition does not induce brand-name producers to lower prices. However, consumer choices between generic and brand-name drugs could affect the average price of those brand-name drugs that are purchased. We use nationally representative panel data on drug utilization and costs for the years 1996-2001 to examine how the share of an individual's prescriptions filled by generics affects his average out-of-pocket cost for brand-name drugs. Our principal finding is that a higher generic scrip share lowers average brand-name prices to consumers, presumably because consumers are more likely to substitute generics when the price gap is great. This effect is substantial: a 10% increase in the consumer's generic scrip share is associated with a 15.6% decline in the average price he pays for brand-name drugs.

JEL-codes: D12 D40 I11 (search for similar items in EconPapers)
Date: 2005-06
New Economics Papers: this item is included in nep-com, nep-dcm and nep-hea
Note: EH IO
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Citations: View citations in EconPapers (7)

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