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Title:Regulation and pricing of pharmaceuticals: reference pricing or price cap regulation? PDF Logo
Authors:Brekke, Kurt R.
Grasdal, Astrid L.
Holmås, Tor Helge
Issue Date:2007
Series/Report no.:CESifo working paper 2059
Abstract:We study the relationship between regulatory regimes and pharmaceutical firms’ pricing strategies using a unique policy experiment from Norway, which in 2003 introduced a reference price (RP) system called “index pricing” for a sub-sample of off-patent pharmaceuticals, replacing the existing price cap (PC) regulation. We estimate the effect of the reform using a product level panel dataset, covering the drugs exposed to RP and a large number of drugs still under PC regulation in the time before and after the policy change. Our results show that RP significantly reduces both brand-name and generic prices within the reference group, with the effect being stronger for brand-names. We also identify a negative cross-price effect on therapeutic substitutes not included in the RP-system. In terms of policy implications, the results suggest that RP is more effective than PC regulation in lowering drug prices, while the cross-price effect raises a concern about patent protection.
JEL:I11
L13
L51
L65
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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