Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 20/2018: Quality Regulation and Competition: Evidence from Pharmaceutical Markets

Juan Pablo Atal (), José Ignacio Cuesta () and Morten Sæthre ()
Additional contact information
Juan Pablo Atal: University of Pennsylvania, Postal: University of Pennsylvania
José Ignacio Cuesta: University of Chicago, Postal: University of Chicago
Morten Sæthre: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway

Abstract: We study the effects of quality regulation on market outcomes by exploiting the staggered phase-in of bioequivalence requirements for generic drugs in Chile. We estimate that the number of drugs in the market decreased by 25%, average paid prices increased by 10%, and total sales decreased by 20%. These adverse effects were concentrated among small markets. Our results suggest that the intended effects of quality regulation on price competition through increased (perceived) quality of generics—and therefore reduced vertical differentiation—were overturned by adverse competitive effects arising from the costs of complying with the regulation.

Keywords: Quality regulation; competition; bioequivalence; generic pharmaceuticals

JEL-codes: I11; L11; L15; L65

68 pages, September 26, 2018

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