Reference Pricing, Generic Entry, and Pharmaceutical Prices
نویسندگان
چکیده
In this paper we study the impact of reference pricing (RP) on entry of generic firms in the pharmaceutical market. For given prices, RP increases generic firms’expected profit, but since RP also stimulates price competition the impact on generic entry is theoretically ambiguous. In order to empirically test the effects of RP, we exploit a policy reform in Norway in 2005 that exposed a subset of drugs to RP. Having detailed product-level data for a wide set of substances from 2003 to 2013, we find that RP increases the number of generic drugs. We also find that RP increases market shares of generic drugs and reduces prices of both branded and generic drugs with a significant part of these effects being caused by increased generic entry. Despite price reductions, we find no effect of RP on pharmaceutical expenditures, but show that this is due to an increase in total demand.
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