Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Kurt R. Brekke
Does Reference Pricing Drive Out Generic Competition in Pharmaceutical Markets? Evidence from a Policy Reform.
(), Chiara Canta
() and Odd Rune Straume
Abstract: In this paper we study the impact of reference pricing
(RP) on entry of generic firms in the pharmaceutical market. For given
prices, RP increases generic firms expected profit, but since RP also
stimulates price competition, the impact on generic entry is theoretically
ambiguous. In order to empirically test the effects of RP, we exploit a
policy reform in Norway in 2005 that exposed a subset of drugs to RP.
Having detailed product-level data for a wide set of substances from 2003
to 2013, we find that RP increased the number of generic drugs. We also
find that RP increased market shares of generic drugs, reduced the prices
of both branded and generic drugs, and led to a (weakly significant)
decrease in total drug expenditures. The reduction in total expenditures
was relatively smaller than the reduction in average prices, reflecting the
fact that lower prices stimulated total demand.
Keywords: Pharmaceuticals; Reference pricing; Generic entry.; (follow links to similar papers)
JEL-Codes: I11; I18; L13; L65; (follow links to similar papers)
38 pages, June 4, 2015
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