Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/109801
Authors: 
Birg, Laura
Year of Publication: 
2015
Series/Report no.: 
Discussion Papers, Center for European Governance and Economic Development Research 241
Abstract: 
This paper studies the effect of two regulatory instruments - a price cap and a reference price system - a mandatory substitution rule, and the combination of both on generic competition in a Salop-type model with an off-patent brand-name drug and n differentiated generic versions. The price cap reduces only the brand-name price, the reference price system reduces the brand-name price and generic prices. Both regulatory instruments reduce the generic market share and the number of generic competitors. The mandatory substitution rule decreases the brand-name price, but increases generic prices. It increases the generic market share and the number of generic competitors. Under mandatory substitution, price decreases under both regulatory instruments are lower. Mandatory substitution weakens the negative effect of the price cap on the generic market share and the number of generic competitors, but it amplifies the negative effect of the reference price system on the generic market share and the number of generic competitors.
Subjects: 
pharmaceutical regulation
generic competition
mandatory substitution
reference price
price cap
JEL: 
I18
I11
L50
Document Type: 
Working Paper

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