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The effects of dynamic and static competition on prescription drug prices in Denmark, 1997–2017

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  • Frank R. Lichtenberg

    (Columbia University)

Abstract

A recent study examined the effects of both dynamic (between-substance) and static (within-substance) competition on prescription drug prices in the U.S. It showed that the 1985–2005 increase in between-substance competition reduced the average 2017 U.S. price of drugs that were already sold in 1997 by 35%, and that, due to this price reduction, 36% of 2017 expenditure on drugs that were first registered during 1986–2005 was offset by reduced 2017 expenditure on drugs that were sold in both 1997 and 2017. This study uses similar methods to examine the effect of both between- and within-substance competition on drug prices in Denmark. Drug prices are 60% lower in Denmark than they are in the U.S.; per capita drug expenditure is 74% lower in Denmark than it is in the U.S. Our estimates indicate that the 1997–2017 increase in between-substance competition reduced the average 2017 price of “old drugs” (drugs already sold in 1997) by 18%. This price reduction was 60% as large as the price reduction due to the increase in within-substance competition. We estimate that 24% of 2017 expenditure on drugs that were first registered during 1986–2005 was offset by reduced 2017 expenditure on drugs that were sold in both 1997 and 2017. The effect of between-substance competition on drug prices should be recognized by both health technology assessment decisionmakers and antitrust authorities.

Suggested Citation

  • Frank R. Lichtenberg, 2022. "The effects of dynamic and static competition on prescription drug prices in Denmark, 1997–2017," Journal of Evolutionary Economics, Springer, vol. 32(4), pages 1155-1173, September.
    • Handle: RePEc:spr:joevec:v:32:y:2022:i:4:d:10.1007_s00191-022-00777-4
    DOI: 10.1007/s00191-022-00777-4
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    References listed on IDEAS

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    Cited by:

    1. Frank R. Lichtenberg, 2024. "Has pharmaceutical innovation reduced the average cost of U.S. health care episodes?," International Journal of Health Economics and Management, Springer, vol. 24(1), pages 1-31, March.

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    More about this item

    Keywords

    Competition; Entry; Drug prices; Denmark; Pharmaceuticals;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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