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Generic Scrip Share and the Price of Brand-Name Drugs: The Role of the Consumer

Author

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  • John A. Rizzo
  • Richard Zeckhauser

Abstract

Generic drug utilization has risen dramatically, from 19% of scrips in 1984 to 47% in 2001, thus bringing significant direct dollar savings. Generic drug use may also yield indirect savings if it lowers the average price of those brand-name drugs that are still purchased. Prior work indicates - and we confirm - that generic competition does not induce brand-name producers to lower prices. However, consumer choices between generic and brand-name drugs could affect the average price of those brand-name drugs that are purchased. We use nationally representative panel data on drug utilization and costs for the years 1996-2001 to examine how the share of an individual's prescriptions filled by generics affects his average out-of-pocket cost for brand-name drugs. Our principal finding is that a higher generic scrip share lowers average brand-name prices to consumers, presumably because consumers are more likely to substitute generics when the price gap is great. This effect is substantial: a 10% increase in the consumer's generic scrip share is associated with a 15.6% decline in the average price he pays for brand-name drugs.

Suggested Citation

  • John A. Rizzo & Richard Zeckhauser, 2005. "Generic Scrip Share and the Price of Brand-Name Drugs: The Role of the Consumer," NBER Working Papers 11431, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11431
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    Cited by:

    1. Granlund, David & Rudholm, Niklas, 2008. "Consumer Loyalty in the Swedish Pharmaceuticals Market," HUI Working Papers 17, HUI Research.
    2. Bate, Roger & Jin, Ginger Zhe & Mathur, Aparna, 2011. "Does price reveal poor-quality drugs? Evidence from 17 countries," Journal of Health Economics, Elsevier, vol. 30(6), pages 1150-1163.
    3. Kanavos, Panos G. & Vandoros, Sotiris, 2011. "Determinants of branded prescription medicine prices in OECD countries," Health Economics, Policy and Law, Cambridge University Press, vol. 6(3), pages 337-367, July.
    4. Aparna Mathur & Roger Bate, 2015. "Generics substitution, bioequivalence standards, and oversight of international pharmaceutical producers: Complex issues facing the FDA," AEI Economics Working Papers 841152, American Enterprise Institute.
    5. David Granlund & Niklas Rudholm, 2012. "The Prescribing Physician’s Influence on Consumer Choice Between Medically Equivalent Pharmaceuticals," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(3), pages 207-222, November.
    6. Costa-Font, Joan & Rudisill, Caroline & Tan, Stefanie, 2014. "Brand loyalty, patients and limited generic medicines uptake," Health Policy, Elsevier, vol. 116(2), pages 224-233.
    7. Sotiris Vandoros & Panos Kanavos, 2013. "The generics paradox revisited: empirical evidence from regulated markets," Applied Economics, Taylor & Francis Journals, vol. 45(22), pages 3230-3239, August.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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