Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/46451
Authors: 
Brekke, Kurt R.
Holmås, Tor Helge
Straume, Odd Rune
Year of Publication: 
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

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