[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/jhecon/v61y2018icp1-12.html
   My bibliography  Save this article

Price competition in pharmaceuticals – Evidence from 1303 Swedish markets

Author

Listed:
  • Granlund, David
  • Bergman, Mats A.
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 within a reference-price system. 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 effect of firms selling other products with the same active substance, but with different package size, form, or strength, is only a tenths 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.

Suggested Citation

  • Granlund, David & Bergman, Mats A., 2018. "Price competition in pharmaceuticals – Evidence from 1303 Swedish markets," Journal of Health Economics, Elsevier, vol. 61(C), pages 1-12.
    • Handle: RePEc:eee:jhecon:v:61:y:2018:i:c:p:1-12
    DOI: 10.1016/j.jhealeco.2018.06.009
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S016762961730975X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jhealeco.2018.06.009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Plott, Charles R & George, Glen, 1992. "Marshallian vs. Walrasian Stability in an Experimental Market," Economic Journal, Royal Economic Society, vol. 102(412), pages 437-460, May.
    2. Brekke, Kurt R. & Konigbauer, Ingrid & Straume, Odd Rune, 2007. "Reference pricing of pharmaceuticals," Journal of Health Economics, Elsevier, vol. 26(3), pages 613-642, May.
    3. Michael J. Mazzeo, 2002. "Product Choice and Oligopoly Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 221-242, Summer.
    4. Ernst Berndt & Murray Aitken, 2011. "Brand Loyalty, Generic Entry and Price Competition in Pharmaceuticals in the Quarter Century after the 1984 Waxman-Hatch Legislation," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 18(2), pages 177-201.
    5. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 75-90, March.
    6. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    7. Lopez-Casasnovas, Guillem & Puig-Junoy, Jaume, 2000. "Review of the literature on reference pricing," Health Policy, Elsevier, vol. 54(2), pages 87-123, November.
    8. Tom Stargardt, 2011. "Modelling pharmaceutical price changes in Germany: a function of competition and regulation," Applied Economics, Taylor & Francis Journals, vol. 43(29), pages 4515-4526.
    9. Barut, Yasar & Kovenock, Dan, 1998. "The symmetric multiple prize all-pay auction with complete information," European Journal of Political Economy, Elsevier, vol. 14(4), pages 627-644, November.
    10. Andrew T. Ching, 2010. "A Dynamic Oligopoly Structural Model For The Prescription Drug Market After Patent Expiration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 1175-1207, November.
    11. Keele, Luke & Kelly, Nathan J., 2006. "Dynamic Models for Dynamic Theories: The Ins and Outs of Lagged Dependent Variables," Political Analysis, Cambridge University Press, vol. 14(2), pages 186-205, April.
    12. Miraldo, Marisa, 2009. "Reference pricing and firms' pricing strategies," Journal of Health Economics, Elsevier, vol. 28(1), pages 176-197, January.
    13. Ulrich Kaiser & Susan J. Méndez, 2015. "How Do Drug Prices Respond to a Change from External to Internal Reference Pricing? Evidence from a Danish Regulatory Reform," Melbourne Institute Working Paper Series wp2015n04, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    14. Sean Crockett & Ryan Oprea & Charles Plott, 2011. "Extreme Walrasian Dynamics: The Gale Example in the Lab," American Economic Review, American Economic Association, vol. 101(7), pages 3196-3220, December.
    15. Steven N. Wiggins & Robert Maness, 2004. "Price Competition in Pharmaceuticals: The Case of Anti-infectives," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 247-263, April.
    16. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70(2), pages 111-111.
    17. David Granlund & Niklas Rudholm, 2012. "The Prescribing Physician’s Influence on Consumer Choice Between Medically Equivalent Pharmaceuticals," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(3), pages 207-222, November.
    18. Mats A. Bergman & Niklas Rudholm, 2003. "The Relative Importance of Actual and Potential Competition: Empirical Evidence From the Pharmaceuticals Market," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 455-467, December.
    19. Cumby, Robert E & Huizinga, John, 1992. "Testing the Autocorrelation Structure of Disturbances in Ordinary Least Squares and Instrumental Variables Regressions," Econometrica, Econometric Society, vol. 60(1), pages 185-195, January.
    20. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    21. Brekke, Kurt R. & Grasdal, Astrid L. & Holms, Tor Helge, 2009. "Regulation and pricing of pharmaceuticals: Reference pricing or price cap regulation?," European Economic Review, Elsevier, vol. 53(2), pages 170-185, February.
    22. Mats A. Bergman & David Granlund & Niklas Rudholm, 2017. "Squeezing the Last Drop Out of Your Suppliers: An Empirical Study of Market-Based Purchasing Policies for Generic Pharmaceuticals," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(6), pages 969-996, December.
    23. Brekke, Kurt R. & Holmas, Tor Helge & Straume, Odd Rune, 2011. "Reference pricing, competition, and pharmaceutical expenditures: Theory and evidence from a natural experiment," Journal of Public Economics, Elsevier, vol. 95(7), pages 624-638.
    24. Regan, Tracy L., 2008. "Generic entry, price competition, and market segmentation in the prescription drug market," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 930-948, July.
    25. Ching, Andrew T., 2010. "Consumer learning and heterogeneity: Dynamics of demand for prescription drugs after patent expiration," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 619-638, November.
    26. Danzon, Patricia M & Chao, Li-Wei, 2000. "Does Regulation Drive out Competition in Pharmaceutical Markets?," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 311-357, October.
    27. Nina Pavcnik, 2002. "Do Pharmaceutical Prices Respond to Potential Patient Out-of-Pocket Expenses?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 469-487, Autumn.
    28. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 41-71.
    29. David Reiffen & Michael R. Ward, 2005. "Generic Drug Industry Dynamics," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 37-49, February.
    30. Morrison, Steven A & Winston, Clifford, 1987. "Empirical Implications and Tests of the Contestability Hypothesis," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 53-66, April.
    31. Vishal Singh & Ting Zhu, 2008. "Pricing and Market Concentration in Oligopoly Markets," Marketing Science, INFORMS, vol. 27(6), pages 1020-1035, 11-12.
    32. Atanu Saha & Henry Grabowski & Howard Birnbaum & Paul Greenberg & Oded Bizan, 2006. "Generic Competition in the US Pharmaceutical Industry," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(1), pages 15-38.
    33. Davis, Peter, 2005. "The Effect of Local Competition on Admission Prices in the U.S. Motion Picture Exhibition Market," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 677-708, October.
    34. Ghislandi, Simone, 2011. "Competition and the Reference Pricing Scheme for pharmaceuticals," Journal of Health Economics, Elsevier, vol. 30(6), pages 1137-1149.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Eduardo Costa & Carolina Santos, 2022. "Pharmaceutical pricing dynamics in an internal reference pricing system: evidence from changing drugs’ reimbursements," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 23(9), pages 1497-1518, December.
    2. Frank R. Lichtenberg, 2022. "The effects of dynamic and static competition on prescription drug prices in Denmark, 1997–2017," Journal of Evolutionary Economics, Springer, vol. 32(4), pages 1155-1173, September.
    3. David Granlund, 2022. "The Price Effects of Competition from Parallel Imports and Therapeutic Alternatives: Using Dynamic Models to Estimate the Causal Effect on the Extensive and Intensive Margins," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 63-92, February.
    4. Granlund, David & Rudholm, Niklas, 2023. "Calculating the probability of collusion based on observed price patterns," Umeå Economic Studies 1014, Umeå University, Department of Economics, revised 13 Oct 2023.
    5. Frank R. Lichtenberg, 2021. "Are drug prices subject to creative destruction? Evidence from the US, 1997–2017," Health Economics, John Wiley & Sons, Ltd., vol. 30(8), pages 1910-1932, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mats A. Bergman & David Granlund & Niklas Rudholm, 2017. "Squeezing the Last Drop Out of Your Suppliers: An Empirical Study of Market-Based Purchasing Policies for Generic Pharmaceuticals," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(6), pages 969-996, December.
    2. Kaiser, Ulrich & Mendez, Susan J. & Rønde, Thomas & Ullrich, Hannes, 2014. "Regulation of pharmaceutical prices: Evidence from a reference price reform in Denmark," Journal of Health Economics, Elsevier, vol. 36(C), pages 174-187.
    3. Kurt R. Brekke & Chiara Canta & Odd Rune StraumeAuthor-Email: o.r.straume@eeg.uminho.p, 2015. "Does Reference Pricing Drive Out Generic Competition in Pharmaceutical Markets? Evidence from a Policy Reform," NIPE Working Papers 6/2015, NIPE - Universidade do Minho.
    4. Brekke, Kurt R. & Holmas, Tor Helge & Straume, Odd Rune, 2011. "Reference pricing, competition, and pharmaceutical expenditures: Theory and evidence from a natural experiment," Journal of Public Economics, Elsevier, vol. 95(7), pages 624-638.
    5. Brekke, Kurt R. & Canta, Chiara & Straume, Odd Rune, 2016. "Reference pricing with endogenous generic entry," Journal of Health Economics, Elsevier, vol. 50(C), pages 312-329.
    6. Herr, A. & Suppliet, M., 2011. "Co-Payment Exemptions and Reference Prices: an Empirical Study of Pharmaceutical Prices in Germany," Health, Econometrics and Data Group (HEDG) Working Papers 11/18, HEDG, c/o Department of Economics, University of York.
    7. repec:nip:nipewp:06/2015 is not listed on IDEAS
    8. Granlund, David & Bergman, Mats A., 2017. "Price competition in pharmaceuticals – evidence from 1303 Swedish markets," Umeå Economic Studies 952, Umeå University, Department of Economics.
    9. Roger Feldman & Félix Lobo, 2013. "Competition in prescription drug markets: the roles of trademarks, advertising, and generic names," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(4), pages 667-675, August.
    10. Iván Moreno-Torres & Jaume Puig-Junoy & Joan-Ramon Borrell, 2009. "Generic Entry into the Regulated Spanish Pharmaceutical Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(4), pages 373-388, June.
    11. David Granlund & Miyase Koksal-Ayhan, 2015. "Parallel imports and a mandatory substitution reform: a kick or a muff for price competition in pharmaceuticals?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(9), pages 969-983, December.
    12. Herr, Annika & Stühmeier, Torben & Wenzel, Tobias, 2014. "Reference pricing and cost-sharing: Theory and evidence on German off-patent drugs," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100556, Verein für Socialpolitik / German Economic Association.
    13. Susan J. Méndez, 2018. "Parallel trade of pharmaceuticals: The Danish market for statins," Health Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 333-356, February.
    14. Bergman, Mats & Granlund, David & Rudholm, Niklas, 2016. "Squeezing the last drop out of your suppliers: an empirical study of market-based purchasing policies for generic pharmaceuticals," HUI Working Papers 116, HUI Research.
    15. Serra-Sastre, Victoria & Bianchi, Simona & Mestre-Ferrandiz, Jorge & O’Neill, Phill, 2021. "Does NICE influence the adoption and uptake of generics in the UK?," LSE Research Online Documents on Economics 113639, London School of Economics and Political Science, LSE Library.
    16. Sotiris Vandoros, 2014. "Therapeutic Substitution Post‐Patent Expiry: The Cases Of Ace Inhibitors And Proton Pump Inhibitors," Health Economics, John Wiley & Sons, Ltd., vol. 23(5), pages 621-630, May.
    17. Hokkanen, Joni & Kangasharju, Aki & Linnosmaa, Ismo & Valtonen, Hannu, 2012. "Generic substitution policy, prices and market structure: evidence from a quasi-experiment in Finland," Working Papers 35, VATT Institute for Economic Research.
    18. Granlund, David & Yesim Köksal, Miyase, 2011. "Parallel Imports and Mandatory Substitution Reform: A kick or a muff for price competition in pharmaceuticals," Working Papers in Economics 496, University of Gothenburg, Department of Economics.
    19. Arcidiacono, Peter & Ellickson, Paul B. & Landry, Peter & Ridley, David B., 2013. "Pharmaceutical followers," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 538-553.
    20. Victoria Serra-Sastre & Simona Bianchi & Jorge Mestre-Ferrandiz & Phill O’Neill, 2021. "Does NICE influence the adoption and uptake of generics in the UK?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 22(2), pages 229-242, March.
    21. Matteo Galizzi & Simone Ghislandi & Marisa Miraldo, 2011. "Effects of Reference Pricing in Pharmaceutical Markets," PharmacoEconomics, Springer, vol. 29(1), pages 17-33, January.

    More about this item

    Keywords

    Price competition; Dynamic; Adjustment; Pharmaceutical industry; Generic drugs; Brand-name drugs; Reference price; Generic substitution;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jhecon:v:61:y:2018:i:c:p:1-12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505560 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.