Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 952: Price competition in pharmaceuticals – evidence from 1303 Swedish markets

David Granlund () and Mats A. Bergman ()
Additional contact information
David Granlund: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden
Mats A. Bergman: Södertörn University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden

Abstract: We study the short- and long-term price effects of the number of competing firms, using panel-data on 1303 distinct pharmaceutical markets for 78 months. We use actual transaction prices in an institutional setting with little scope for non-price competition and where simultaneity problems can be addressed effectively. In the long term, the price of generics is found to decrease by 81% when the number of firms selling generics with the same strength, form and similar package size is increased from 1 to 10. Nearly only competition at this fine-grained level matters; the price effect of firms selling other products with the same active substance, but with different package size, form, or strength, is only a tenth as large. Half of the price reductions take place immediately and 70% within three months. Also, prices of originals are found to react to competition, but far less and much slower.

Keywords: Price competition; dynamic; adjustment; pharmaceutical industry; generic drugs; brand-name drugs

JEL-codes: D40; I13; L13; L65

28 pages, August 28, 2017

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