Generic competition and price regulation in pharmaceuticals: evidence from the European Union

Abstract

The purpose of this study is to examine the extent of generic competition in European countries, given an understanding of these countries' different pharmaceutical price regulations. In particular, this study investigates the competitive effects of generic entry among the five largest European pharmaceutical markets; the United Kingdom, Germany, France, Italy and Spain, and employs fully interacted model with comprehensive IMS data set for 10 years (1994-2003), in order to estimate the effect of generic entry on drug prices at the product level. Accordingly, this analysis finds that generic entry has a negative effect on prices in countries with free pricing originator market, whereas in countries with strict price and reimbursement regulation, generic competition is ineffective and/or counterproductive. Low regulated prices for originator products do not encourage generic entry following patent expiration. This finding is consistent with less generic firms and less competitive late entrants in regulated environments. Thus, strict price regulation undermines price competition in the off-patent market.