Uncovering Competitive Forces in Prescription Drug Markets: Evidence from Statins

Abstract

This paper investigates firms' competitive dynamics and market power in the pharmaceutical sector. We perform two complementary analyses in the market for statins. First, we analyze how multimarket presence and contacts affect price competition. Second, we explore the effect of generic entry in a new off-patent statin, rosuvastatin, on generic prices in older off-patent statins.We use the Portuguese statins market, where prices are capped, as a case-study. Since prices are capped, the key variable of interest in this paper is the distance between the drug price and the drug price. We combine information from two datasets. The first contains all drug sales, by product. The second is a pricing database containing retail, reference, and price caps for all drugs sold in the Portuguese Reference Pricing System, between the first quarter of 2015 and the last quarter of 2019.Results from panel data models exploring both within and between-firm variation suggest companies do not exploit potential economies of scope to set lower prices, relative to their caps. Moreover, estimates show that companies rely on repeated interaction with rivals to soften price competition. Finally, synthetic control analyses show that generic entry in rosuvastatin did not affect generic drug prices in competing off-patent statins. Overall, price competition in these markets remains low, with price caps being the main determinant of drug prices.