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What if there was a stronger pharmaceutical price competition in Spain? When regulation has a similar effect to collusion

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  • Ivan Moreno-Torres

    (Competition Authority of Catalonia (ACCO), Generalitat de Catalunya; Center for Research in Economics and Health (CRES), Universitat Pompeu Fabra; Governments and Markets (GiM-IREA), Universitat de Barcelona)

Abstract

This paper examines statins competition in the Spanish pharmaceutical market, where prices are highly regulated, and simulates a situation in which there is unrestricted price competition. A nested logit demand model is estimated with a panel of monthly data for pharmaceuticals prescribed from 1997 to 2005. The simulation indicates that the regulation of prices is similar in its effects to cooperation among producers, since the regulated prices are close to those that would be observed in a scenario of perfect collusion. Freedom to set prices and a regulatory framework with appropriate incentives would result in a general reduction in prices and may make the current veiled competition in the form of discounts to pharmacists become more visible. The decrease in prices would be partially offset by an increase in consumption but the net effect would be an overall decrease in expenditure. The counterfactual set-up would also lead to important changes in the market shares of both manufacturers and active ingredients, and a reversal of generic drugs. Therefore, pro-competitive regulation would be welfare-enhancing but would imply winners and losers.

Suggested Citation

  • Ivan Moreno-Torres, 2011. "What if there was a stronger pharmaceutical price competition in Spain? When regulation has a similar effect to collusion," Working Papers XREAP2011-02, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.
    • Handle: RePEc:xrp:wpaper:xreap2011-02
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    More about this item

    Keywords

    Pharmaceutical industry; Statin drugs; Competition; Regulation;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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