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Price competition in pharmaceuticals – Evidence from 1303 Swedish markets

David Granlund and Mats A. Bergman

Journal of Health Economics, 2018, vol. 61, issue C, 1-12

Abstract: We study the short- and long-term price effects of the number of competing firms, using panel-data on 1303 distinct pharmaceutical markets for 78 months within a reference-price system. We use actual transaction prices in an institutional setting with little scope for non-price competition and where simultaneity problems can be addressed effectively. In the long term, the price of generics is found to decrease by 81% when the number of firms selling generics with the same strength, form and similar package size is increased from 1 to 10. Nearly only competition at this fine-grained level matters; the effect of firms selling other products with the same active substance, but with different package size, form, or strength, is only a tenths as large. Half of the price reductions take place immediately and 70% within three months. Also, prices of originals are found to react to competition, but far less and much slower.

Keywords: Price competition; Dynamic; Adjustment; Pharmaceutical industry; Generic drugs; Brand-name drugs; Reference price; Generic substitution (search for similar items in EconPapers)
JEL-codes: D40 I13 L13 L65 (search for similar items in EconPapers)
Date: 2018
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Journal of Health Economics is currently edited by J. P. Newhouse, A. J. Culyer, R. Frank, K. Claxton and T. McGuire

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