Does Reference Pricing Drive Out Generic Competition in Pharmaceutical Markets? Evidence from a Policy Reform

Kurt Brekke (), Chiara Canta () and Odd Rune Straume

No 6/2015, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: In this paper we study the impact of reference pricing (RP) on entry of generic firms in the pharmaceutical market. For given prices, RP increases generic firms' expected profit, but since RP also stimulates price competition, the impact on generic entry is theoretically ambiguous. In order to empirically test the effects of RP, we exploit a policy reform in Norway in 2005 that exposed a subset of drugs to RP. Having detailed product-level data for a wide set of substances from 2003 to 2013, we find that RP increased the number of generic drugs. We also find that RP increased market shares of generic drugs, reduced the prices of both branded and generic drugs, and led to a (weakly significant) decrease in total drug expenditures. The reduction in total expenditures was relatively smaller than the reduction in average prices, reflecting the fact that lower prices stimulated total demand.

Keywords: Pharmaceuticals; Reference pricing; Generic entry (search for similar items in EconPapers)
JEL-codes: I11 I18 L13 L65 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-com, nep-eur, nep-hea, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Does Reference Pricing Drive Out Generic Competition in Pharmaceutical Markets? Evidence from a Policy Reform (2022)
Working Paper: Does Reference Pricing Drive Out Generic Competition in Pharmaceutical Markets? Evidence from a Policy Reform (2015)
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