Consumer Information and Pharmaceutical Prices: Theory and Evidence

The impact of a reform that increased consumer information on brand name and generic pharmaceutical prices is analyzed both theoretically and empirically. The theoretical results show that an increase in information likely reduces the price of brand name pharmaceuticals, while the results regarding generics are less clear. In the empirical part of the paper, the introduction of the substitution reform in the Swedish pharmaceuticals market in October 2002 is used as a natural experiment regarding the e¤ects of increased consumer information on pharmaceutical prices. The results clearly show that the reform has lowered the price of both brand name and generic pharmaceuticals. Key Words: pharmaceutical industry; generic competition; generic drugs; brand name drugs JEL classi…cation: D80; D83; L65; I11 We are grateful to Åke Blomqvist, Kurt Brännäs, Eva Mörk, Magnus Wikström and participants at seminars at Dalarna University, University of Gävle, Umeå University and Uppsala University for comments and suggestions. A research grant from the Swedish Competition Authority is gratefully acknowledged. Corresponding author: [email protected] Consumer Information and Pharmaceutical Prices: Theory and Evidence 1