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| Author: | Brekke, K.R. Holmas, T.H. Straume, O.R. |
| Title: | Reference pricing, competition and pharmaceutical expenditures: theory and evidence from a natural experiment |
| Journal: | Journal of Public Economics
2011 : AUG, VOL 95:7-8, p. 624-638 |
| Index terms: | pharmaceutical industry brand names products pricing markets imperfect competition pricing regulations health Norway |
| Language: | eng |
| Abstract: | We study the effect of regulation on competition between brand-names and generics and pharmaceutical expenditures using a unique policy experiment in Norway, where price cap regulation was substituted with reference pricing (RP) in 2003 for a sub-sample of off-patent products. First, a vertical differentiation model is constructed to inspect the impact of regulation on prices and market shares of brand-names and generics. Then, we exploit a detailed panel data set at product level covering various off-patent molecules before and after the policy reform. The control group consists of off-patent drugs not subject to RP. It is found that RP significantly decreases both brand-name and generic prices, and leads to significantly lower brand-name market shares. Finally, we demonstrate that RP has a strong negative effect on average molecule prices, suggesting substantial cost-savings, and that patients' copayments decrease regardless of the extra surcharges under RP. |
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