Pricing of new pharmaceuticals and price regulation in India
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Vasudha Wattal: Centre for Competition Policy and School of Economics, University of East Anglia
No 2022-02, Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) from Centre for Competition Policy, University of East Anglia, Norwich, UK.
How does restricting a firmâ€™s ability to raise prices in the future affect the introductory price of new products? This paper considers this question for new molecules launched in the Indian pharmaceutical market. The empirical results from the Indian market show higher launch prices for originators of chronic drugs that were introduced after the regulatory announcement. However, there appears no significant effect on competitor prices. I show that these findings align with a theoretical framework where originators of repeat purchase products increase introductory prices. While the originator secures a higher second period price, the competitor offers significant price cuts to capture new consumers. Overall, these results suggest that regulation delays welfare gains from new drugs, as initially more consumers are left out. The significance of this finding depends on the importance of these new introductions.
Keywords: regulation; oligopoly; price setting; pharmaceuticals (search for similar items in EconPapers)
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