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Department of Economics, Norwegian School of Economics (NHH) Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)

No 18/2010:
Margins and Market Shares: Pharmacy Incentives for Generic Substitution.

Kurt Richard Brekke (), Tor Helge Holmås () and Odd Rune Straume ()

Abstract: We study the impact of product margins on pharmacies’ incentive to promote generics instead of brand-names. First, we construct a theoretical model where pharmacies can persuade patients with a brand-name prescription to purchase a generic version instead. We show that pharmacies’substitution incentives are determined by relative margins and relative patient copayments. Second, we exploit a unique product level panel data set, which contains information on sales and prices at both producer and retail level. In the empirical analysis, we find a strong relationship between the margins of brand-names and generics and their market shares. In terms of policy implications, our results suggest that pharmacy incentives are crucial for promoting generic sales.

Keywords: Pharmaceuticals; Pharmacies; Generic Substitution.; (follow links to similar papers)

JEL-Codes: I11; I18; L13; L65; (follow links to similar papers)

36 pages, July 7, 2010

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