Working Papers in Economics, Department of Economics, University of Bergen
Kurt R. Brekke
Regulation and Pricing of Pharmaceuticals: Reference Pricing or Price Cap Regulation?
(), Astrid L. Grasdal
() and Tor Helge Holmås
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 reduced
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.
Keywords: Pharmaceuticals; Price Regulation; Branded-Generic competition.; (follow links to similar papers)
JEL-Codes: I11; L13; L51; L65; (follow links to similar papers)
30 pages, September 19, 2006
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