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Title:Reference pricing, competition, and pharmaceutical expenditures: Theory and evidence from a natural experiment PDF Logo
Authors:Brekke, Kurt R.
Holmås, Tor Helge
Straume, Odd Rune
Issue Date:2010
Series/Report no.:CESifo working paper: Industrial Organisation 3258
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.
Subjects:pharmaceuticals
regulation
generic competition
JEL:I11
I18
L13
L65
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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