Title:
Pharmaceutical regulation, mandatory substitution, and generic competition
The document was removed on behalf of the author(s)/ the editor(s).
Publisher:
University of Göttingen, Center for European, Governance and Economic Development Research (cege), Göttingen
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.