Generic and Branded Pharmaceutical Pricing: Competition Under Switching Costs

Abstract

This article examines pricing in pharmaceutical markets where branded products face competition from generics. After providing evidence for brand premia and switching costs using prescription-level and matched socioeconomic data for the entire Swedish population, I estimate a dynamic oligopoly model and evaluate counterfactual policies that reduce the impact of frictions on pricing. Lengthening the procurement period reduces the impact of switching costs on prices. The policy increases prices on average but more so for individuals with infrequent consumption, high education, and income. In a counterfactual where brand choice decisions are moved from patients to medical experts, prices fall substantially.