Please use this identifier to cite or link to this item: http://hdl.handle.net/1822/34417

TitleReference pricing with endogenous generic entry
Author(s)Brekke, Kurt R.
Canta, Chiara
Straume, Odd Rune
KeywordsPharmaceuticals
Reimbursement schemes
Generic entry
Issue date2015
PublisherUniversidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
Abstract(s)In this paper we study the effect of reference pricing on pharmaceutical prices and ex-penditures when generic entry is endogenously determined. We develop a Salop-type model where a brand-name producer competes with generic producers in terms of prices. In the market there are two types of consumers: (i) brand biased consumers who choose between brand-name and generic drugs, and (ii) brand neutral consumers who choose between the different generic drugs. We find that, for a given number of firms, reference pricing leads to lower prices of all products and higher brand-name market shares compared with a reimbursement scheme based on simple coinsurance. Thus, in a free entry equilibrium, the number of generics is lower under reference pricing than under coinsurance, implying that the net effects of reference pricing on prices and expenditures are ambiguous. Allowing for price cap regulation, we show that the negative effect on generic entry can be reversed, and that reference pricing is more likely to result in cost savings than under free pricing. Our results shed light on the mixed empirical evidence on the effects of reference pricing on generic entry.
TypeWorking paper
URIhttp://hdl.handle.net/1822/34417
Publisher versionhttp://www.nipe.eeg.uminho.pt/Uploads/NIPE_WP_02_2015..pdf
Peer-Reviewedno
AccessOpen access
Appears in Collections:NIPE - Documentos de Trabalho

Files in This Item:
File Description SizeFormat 
NIPE_WP_02_2015..pdfReference pricing with endogenous generic entry561,88 kBAdobe PDFView/Open

Partilhe no FacebookPartilhe no TwitterPartilhe no DeliciousPartilhe no LinkedInPartilhe no DiggAdicionar ao Google BookmarksPartilhe no MySpacePartilhe no Orkut
Exporte no formato BibTex mendeley Exporte no formato Endnote Adicione ao seu ORCID