Scandinavian Working Papers in Economics
Memorandum,
Oslo University, Department of Economics
No 33/2005: Price regulation and generic competition in the pharmaceutical market
Dag Morten Dalen (), Steinar Strøm () and Tonje Haabeth
Additional contact information
Dag Morten Dalen: Norwegian School of Management and the Frisch Centre, Postal: Gaustadalléen 21, N-0349 Oslo, Norway
Steinar Strøm: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Tonje Haabeth: University of Oslo and the Frisch Centre, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Abstract: In March 2003 the Norwegian government implemented yardstick based price regulation schemes on a selection of drugs experiencing generic competition. The retail price cap, termed “index price”, on a drug (chemical substance) was set equal to the average of the three lowest producer prices on that drug, plus a fixed wholesale and retail margin. This is supposed to lower barriers of entry for generic drugs and to trigger price competition. Using monthly data over the period 1998-2004 for the 6 drugs (chemical entities) included in the index price system, we estimate a structural model enabling us to examine the impact of the reform on both demand and market power. Our results suggest that the index price helped to increase the market shares of generic drugs and succeeded in triggering price competition.
Keywords: Discrete choice; demand for pharmaceuticals; monopolistic competition; evaluation of yardstick based price regulation
26 pages, November 25, 2005
Full text files
Memo-33-2005.pdf
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