The Impact of Multimarket Competition on Generic Drugs' Regulated Prices

Carolina Santos, Eduardo Costa and Sara Machado

Health Economics, 2025, vol. 34, issue 12, 2196-2222

Abstract: Competition between firms selling similar drugs is often fostered by policymakers as a means to curb pharmaceutical spending. While firms may compete within these specific drug markets, they also repeatedly encounter rival firms in different markets. This may shape competitive dynamics within and between markets. Yet, multimarket contacts, particularly relevant for multiproduct firms such as pharmaceutical companies, are often overlooked by pricing regulations. This paper investigates how multimarket contacts influence competition between pharmaceutical firms in off‐patent markets. Using detailed product‐level information on all retail pharmacy sales of generic statin drugs, we quantify the universe of multimarket contacts between firms in these off‐patent markets, in Portugal, between 2015 and 2017. We then assess how multimarket contacts affect price competition. To do so, we explore the strict price regulation in Portuguese generic drug markets. Specifically, the Portuguese Internal Reference Pricing System (RPS) defines a price cap for each generic drug. Rather than examining absolute drug prices, we quantify the degree of price competition as the ratio between a firm's drug price and its regulatory price cap (price‐to‐cap ratio). We find that firms with more multimarket interactions set prices closer to price caps, consistent with the mutual forbearance hypothesis. This effect persists after controlling for brand status, lagged market share, and is not explained by common ownership. Our main results are consistent across alternative model specifications. However, due to limited within‐firm variation over time, the effect is not significant in system generalized method of moment instrumental variable estimates. These results suggest that price caps may act as coordination anchors, thus lowering price competition between firms. Policymakers should consider targeted price cap adjustments as safeguards to preserve competition in off‐patent drug markets.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/hec.70029

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:hlthec:v:34:y:2025:i:12:p:2196-2222

Access Statistics for this article

Health Economics is currently edited by Alan Maynard, John Hutton and Andrew Jones

More articles in Health Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().