Abstract
The purpose of this paper is to estimate patients’ and doctors’ responses to prices when making a choice between brand name products and generics. We account for the response of pharmacies to government regulation and to prices set by brand name producers. The data from the Norwegian Prescription Database are unique in the sense that we observe prices set by pharmacies as well as by producers. Our results confirm that estimating only the demand side yields biased estimates of consumers’ price responses. We find much stronger price responses when demand and supply are jointly estimated.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
We provide a description of the variables and summary statistics including market shares in http://folk.uio.no/steinast/supplements/An%20Equilibrium%20Model-Sum.stat.pdf
References
Anderson, S. P., Palma, A. D., & Thisse, J. F. (1992). Discrete choice theory of product differentiation. Cambridge: MIT Press.
Aricidiacono, P., Elickson, P. B., Landry, P., & Ridley, D. B. (2013). Pharmaceutical followers. International Journal of Industrial Organization, 31(5), 538–555.
Berry, S. T. (1994). Estimating discrete-choice models of product differentiation. RAND Journal of Economics, 25(2), 242–262.
Berry, S. T., Levinsohn, J., & Pakes, A. (1995). Automobile prices in market equilibrium. Econometrica, 63(4), 841–890.
Brekke, K. R., Dalen, D. M., & Strøm, S. (2012). Should pharmaceuticals costs be curbed? Nordic Economic Policy Review, 2, 1–28.
Coscelli, A. (2000). The importance of doctors’ and patients’ preferences in the prescription decision. Journal of Industrial Economics, 48(3), 349–369.
Dalen, D. M., Locatelli, M., Sorisio, E., & Strøm, S. (2014). Does the identity of the third-part payer matters for the prescribing doctors. Applied Economics and Finance, 1(1), 9–54.
Folksholseinstitutiet (2017). Norwegian Prescription Data Base.
Granlund, D. (2010). Price and welfare effects of a pharmaceutical substitution reform. Journal of Health Economics, 29, 856–865.
Haavelmo, T. (1943). The statistical implications of a system of simultaneous equations. Econometrica, 11(1), 1–12.
Haavelmo, T. (1944). The probability approach in econometrics. Econometrica, 12(iii-vi), 1–115 (Supplementary Issue).
Hellerstein, J. (1998). The importance of physician in the generic versus trade-name prescription decision. RAND Journal of Economics, 29(1), 108–136.
Ljung, G., & Box, G. E. P. (1978). On a measure of lack of fit in time series model. Biometrika, 66, 67–72.
Lundin, D. (2000). Moral hazard in physician prescription behaviour. Journal of Health Economics, 19(5, 2000), 639–662.
Schweitzer, S. O., & Lu, Z. J. (2018). Pharmaceuticals economics and policy. Oxford: Oxford University Press.
Skipper, N., & Vejlin, R. (2015). Determinants of generic vs brand drug choice: evidence from population-wide Danish data. Social Science & Medicine, 130, 204–215.
Train, K. E. (2009). Discrete choice methods with simulation (2nd ed.). Cambridge: Cambridge University Press.
Vogler, S. (2012). The impact of pharmaceutical pricing and reimbursement policies on generics uptake: Implementation of policy options on generics in 29 European countries–an overview. 1, 2, pp. 93–100. Available at: http://gabi-journal.net/the-impact-of-pharmaceutical-pricing-and-reimbursement-policies-on-generics-uptake-implementation-of-policy-options-on-generics-in-29-european-countries%E2%94%80an-overview.html.
Yeung, K., Basu, A., Hansen, R.N., & Sullivan, S.D. (2016). Price elasticities of pharmaceuticals in a value-based- formulary setting. NBER, Working paper no 22308, http://www.nber.org/papers/w22308.
Funding
This study was funded by The Ragnar Frisch Centre of Economic Research, Oslo, Norway and by Small Research Grants from the Department of Economics, University of Oslo.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of Interest
The authors declare that they have no conflict of interest.
Additional information
We gratefully acknowledge support from the Norwegian Research Council. We thank John K. Dagsvik and two anonymous reviewers for helpful suggestions and comments. Financial support from The Frisch Centre is gratefully acknowledged.
Rights and permissions
About this article
Cite this article
Dalen, D.M., Locatelli, M. & Strøm, S. An Equilibrium Model Estimated on Pharmaceutical Data. Atl Econ J 46, 281–296 (2018). https://doi.org/10.1007/s11293-018-9592-8
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11293-018-9592-8