Working Paper: NBER ID: w17226
Authors: Patricia M. Danzon; Michael F. Furukawa
Abstract: This paper examines the role of regulation and competition in generic markets. Generics offer large potential savings to payers and consumers of pharmaceuticals. Whether the potential savings are realized depends on the extent of generic entry and uptake and the level of generic prices. In the U.S., the regulatory, legal and incentive structures encourage prompt entry, aggressive price competition and patient switching to generics. Key features are that pharmacists are authorized and incentivized to switch patients to cheap generics. By contrast, in many other high and middle income countries, generics traditionally competed on brand rather than price because physicians rather than pharmacies are the decision-makers. Physician-driven generic markets tend to have higher generic prices and may have lower generic uptake, depending on regulations and incentives. \n \nUsing IMS data to analyze generic markets in the U.S., Canada, France, Germany, U.K., Italy, Spain, Japan, Australia, Mexico, Chile, Brazil over the period 1998-2009, we estimate a three-equation model for number of generic entrants, generic prices and generic volume shares. We find little effect of originator defense strategies, significant differences between unbranded and unbranded generics, variation across countries in volume response to prices. Policy changes adopted to stimulate generic uptake and reduce generic prices have been successful in some E.U. countries.
Keywords: generic pharmaceuticals; regulation; competition; health economics
JEL Codes: I11; I18; K2; L5; L65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of generic entrants (D43) | market size (L25) |
| market size (L25) | number of generic entrants (D43) |
| regulatory incentives (G18) | market dynamics (D49) |
| pharmacy-driven markets (I11) | price competition (D41) |
| policies aimed at increasing generic uptake (L49) | rise in unbranded generics (L65) |
| originator defense strategies (L21) | deter generic entry (L49) |
| differences in regulatory and reimbursement policies (I18) | differences in generic shares and prices (P22) |