Margins and Market Shares: Pharmacy Incentives for Generic Substitution

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 …nd 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.

Parallel trade of pharmaceuticals: The Danish market for statins

“…This is evidence that price differences across molecules are the result of differences in markups rather than differences in marginal cost of production. The markups are slightly lower than are the price‐cost margins reported by Dubois and Lasio () and Brekke et al (). But they are in line with their findings that original firms have lower margins than generic firms.…”

“…Original firms and parallel importers, both of which charge higher prices, have higher elasticities than generics. The lower own‐price elasticity of generics supports the important role of pharmacy incentives (in the Danish case through the rules on generic substitution) (Brekke, Holmås, & Straume, ). Finally, Part D summarizes the results for products off‐patent and on‐patent.…”

Consumer Search, Market Characteristics, and Price Dispersion: New Evidence from the Retail Markets for Prescription Drugs

“…Second, substitutes is possibly endogenous due to a likely reversal causality between price margin and whether or not a drug faces generic competition. Because generic drugs enjoy considerably higher profit margins than the branded ones (Masson and Steiner, ; Steiner, ; Grabowski and Vernon, ; Brekke et al ., ), one may speculate that drugs with higher price margins are more likely to have generic substitute(s). However, the difficulty in finding strong instrument variables for substitutes lies in the lack of variation in the data: no substitute is allowed before patent expiration, while afterwards only a handful of generic substitutes exist .…”

Financial perspective of private pharmacies in Tehran (Iran); is it a lucrative business?

“…The evidence showed that pharmacy margins have an important role in whether or not pharmacists convince patients to use brand or generic medicines [20]. Therefore, it must be mentioned by policymakers that decreasing pharmacies' profitability by cost containment or any other strategy may lead the pharmacies to compensate their profit through other ways, either legal or illegal, including selling non-OTC medicines without prescription, imposing unnecessary costs to patients, etc., that can offset those policies and sometimes threaten the society's health.…”