Excessive Pricing of Pharmaceuticals : What are the drivers leading to excessive pricing in the Norwegian pharmaceutical market?
MetadataShow full item record
- Master Thesis 
Millions of people depend on drugs in their everyday life to improve their life quality or even survive. Recently there has been an increase in the number of cases where prices of patented and generic pharmaceuticals skyrocket, which has led to an increased demand for further regulations. Therefore, our master thesis seeks to answer the following research question: What are the drivers leading to excessive pricing in the Norwegian pharmaceutical market? From economic theory, three main hypotheses for drivers are developed; shortages, falling demand or abuse of market power. If market power is a prominent driver, this may be used as an argument for increased intervention in the Norwegian pharmaceutical market. The study is based on a comprehensive dataset from 2010-2020, covering 2,857 drugs. We apply a logistic regression model to estimate the effect various variables have on the probability of a price increase for a drug. The model rejects the hypothesis of falling demand being a driver at a 25% significance level. Further, it provides indications that market power may be a driver, as a higher market concentration is estimated to have a statistically significant positive effect on the probability of a price increase. We also find that monopolists have higher price increases compared to drugs with competition. This difference is statistically significant. Additionally, five case studies are performed. For three of the case studies, monopolists threaten to withdraw their product from the Norwegian market if their application for higher prices is rejected. It may seem like the pharmaceutical companies manage to abuse their market power against the regulatory authorities. For the two remaining cases, the prices are revised by the Norwegian authorities and increased according to international reference prices. However, the reference prices vary considerably across the comparable countries. Finally, a difference-in-differences approach estimates that the increase in pharmaceutical expenditures the first year after a price increase accumulate to 257 million NOK. Based on our findings, we suggest more intervention, but recognize that a cost-benefit assessment is necessary. We argue that although wrongful intervention may be more costly per case, the probability of this mistake is low due to the high degree of market power observed. We argue that the process for increasing prices should be stricter and that the reference price practice should be supplemented by a qualitative evaluation. Additionally, one should strive to facilitate competition by further reducing entry barriers.