Margins and Market Shares: Pharmacy Incentives for Generic Substitution

Kurt Brekke (), Tor Helge Holmås and Odd Rune Straume

No 4055, CESifo Working Paper Series from CESifo

Abstract: We study the impact of product margins on pharmacies’ incentive to promote generics instead of brand-names. First, we construct a theoretical model where pharmacies can persuade patients with a brand-name prescription to purchase a generic version instead. We show that pharmacies’ substitution incentives are determined by relative margins and relative patient copayments. Second, we exploit a unique product level panel data set, which contains information on sales and prices at both producer and retail level. In the empirical analysis, we find a strong relationship between the margins of brand-names and generics and their market shares. This relationship is stronger for pharmaceuticals under reference pricing rather than coinsurance. In terms of policy implications, our results suggest that pharmacy incentives are crucial for promoting generic sales.

Keywords: pharmaceuticals; pharmacies; generic substitution (search for similar items in EconPapers)
JEL-codes: I11 I18 L13 L65 (search for similar items in EconPapers)
Date: 2012
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Related works:
Journal Article: Margins and market shares: Pharmacy incentives for generic substitution (2013)
Working Paper: Margins and Market Shares: Pharmacy Incentives for Generic Substitution (2010)
Working Paper: Margins and Market Shares:Pharmacy Incentives for Generic Substitution (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4055

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