Margins and Market Shares: Pharmacy Incentives for Generic Substitution

38 Pages Posted: 20 Aug 2010 Last revised: 28 Oct 2010

See all articles by Kurt Richard Brekke

Kurt Richard Brekke

Norwegian School of Economics (NHH) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Tor Helge Holmas

University of Bergen - Department of Economics

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: July 15, 2010

Abstract

We study the impact of product margins on pharmacies' incentive to promote generics instead of brand-names. First, we construct a theoretical model where pharmacies can persuade patients with a brand-name prescription to purchase a generic version instead. We show that pharmacies' substitution incentives are determined by relative margins and relative patient copayments. Second, we exploit a unique product level panel data set, which contains information on sales and prices at both producer and retail level. In the empirical analysis, we find a strong relationship between the margins of brand-names and generics and their market shares. In terms of policy implications, our results suggest that pharmacy incentives are crucial for promoting generic sales.

Keywords: Pharmaceuticals, Pharmacies, Generic Substitution

JEL Classification: I11, I18, L13, L65

Suggested Citation

Brekke, Kurt Richard and Holmas, Tor Helge and Straume, Odd Rune, Margins and Market Shares: Pharmacy Incentives for Generic Substitution (July 15, 2010). NHH Dept. of Economics Discussion Paper No. 18/2010, Available at SSRN: https://ssrn.com/abstract=1661685 or http://dx.doi.org/10.2139/ssrn.1661685

Kurt Richard Brekke (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Tor Helge Holmas

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
+47 55589238 (Phone)
+47 55589210 (Fax)

HOME PAGE: http://www.econ.uib.no/stab/torHelge.html

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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