Studies in pricing and competition in regulated pharmaceutical markets

• Main Author: Vandoros, Sotirios
• Published: London School of Economics and Political Science (University of London) 2010
• Subjects: 338.4
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.645912

This PhD thesis studies three aspects of competition in pharmaceutical markets using data from the EU, and recommends appropriate policies to address inefficiencies. The first study examines the effect of patent expiry on originator drug prices in the presence of price regulation. Using econometric panel data methods, I find that neither generic entry nor generic market penetration affect the prices of originator drugs downwards. Instead, prices of originator drugs often appear to increase post-generic entry. Findings suggest that no savings to health services should be expected post-patent expiry if the originator product is dispensed, and any savings occur solely from generic uptake. The second study examines whether generic entry leads to a switch in total consumption (both originator and generic) from an off-patent branded molecule to a different in-patent molecule of the same therapeutic class. Using panel data analysis, I find that a switch in consumption post-patent expiry took place for the first ACE inhibitor which went off-patent, and in some cases for the second and third product. Such a switch leads to increased costs because it removes any substitution power from health authorities. The third study examines the effects of parallel trade on price competition. The topic is first approached from a game-theoretic point of view, predicting that parallel trade does not trigger price competition. Descriptive statistics demonstrate differences, if any, between prices of locally sourced and parallel traded products in the presence of different regulatory policies. Finally, the econometric analysis shows that there is upward price convergence in the presence of parallel trade. However, some regulatory interventions may lead to a spread between prices of locally sourced products and parallel traded products. Findings suggest that parallel trade should not always be considered a cost-containment mechanism and other ways to address rising pharmaceutical expenditures should be considered.