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Margins and market shares : pharmacy incentives for generic substitution

Brekke, Kurt Richard; Straume, Odd Rune; Holmås, Tor Helge
Working paper
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URI
http://hdl.handle.net/11250/163262
Date
2010-07
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  • Discussion papers (SAM) [638]
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.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2010:18

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