Tuesday, March 17, 2020

Quality Regulation and Competition: Evidence from Pharmaceutical Markets

By: Jesus Juan Pablo Atal (University of Pennsylvania); Jose´ Ignacio Cuesta (University of Chicago); Morten Sæthre (Norwegian School of Economics)
Abstract: Quality regulation attempts to ensure quality and to foster price competition by reducing vertical di?erentiation, but may also have unintended consequences through its e?ects on market structure. We study these e?ects in the context of pharmaceutical bioequivalence, which is the primary quality standard for generic drugs. Exploiting the staggered phase-in of bioequivalence requirements in Chile, we show that stronger quality regulation decreased the number of drugs in the market by 25%, increased average paid prices by 10%, decreased total sales by 20%, and did not have a significant e?ect on observed outcomes related to drug quality. These adverse e?ects were concentrated among small markets. Our results suggest that the intended e?ects of quality regulation on price competition through increased (perceived) quality of generics were overturned by adverse competitive e?ects arising from the costs of complying with the regulation.
URL: http://d.repec.org/n?u=RePEc:pen:papers:19-017&r=com

https://lawprofessors.typepad.com/antitrustprof_blog/2020/03/quality-regulation-and-competition-evidence-from-pharmaceutical-markets.html

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