Reference pricing, competition, and pharmaceutical expenditures: Theory and evidence from a natural experiment

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

Journal of Public Economics, 2011, vol. 95, issue 7, 624-638

Abstract: We study the impact of regulation on competition between brand-names and generics and pharmaceutical expenditures using a unique policy experiment in Norway, where reference pricing (RP) replaced price cap regulation in 2003 for a sub-sample of off-patent products. First, we construct a vertical differentiation model to analyze the impact of regulation on prices and market shares of brand-names and generics. Then, we exploit a detailed panel data set at product level covering several off-patent molecules before and after the policy reform. Off-patent drugs not subject to RP serve as our control group. We find that RP significantly reduces both brand-name and generic prices, and results in significantly lower brand-name market shares. Finally, we show that RP has a strong negative effect on average molecule prices, suggesting significant cost-savings, and that patients' copayments decrease despite the extra surcharges under RP.

Keywords: Pharmaceuticals; Regulation; Generic competition (search for similar items in EconPapers)
JEL-codes: I11 I18 L13 L65 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (67)

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Related works:
Journal Article: Reference pricing, competition, and pharmaceutical expenditures: Theory and evidence from a natural experiment (2011)
Working Paper: Reference Pricing, Competition, and Pharmaceutical Expenditures: Theory and Evidence from a Natural Experiment (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:95:y:2011:i:7:p:624-638

DOI: 10.1016/j.jpubeco.2010.11.015

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