Presentation (CTI)

OBJECTIVES: Competition is often expected to lower prices. However, there is scant empirical evidence on whether and to what extent competition between on-patent branded drugs affects pricing in the pharmaceutical industry. This is in large part because it is challenging (i) to identify competitors among imperfect therapeutic substitutes and (ii) to distinguish between multiple prices across the supply chain. While theory suggests that market entry of competitor products prior to generic entry can exert downward pressure on incumbents’ prices, ongoing policy debates have raised concerns about anticompetitive effects the active role of profit-seeking intermediaries in the supply chain.
METHODS: I construct a novel panel dataset of new product entry events, list and net prices, and rebates across 244 therapeutic markets between 2010 Q1 and 2024 Q3 to estimate how incumbents’ prices change with competition. Using detailed quarterly prices and product-level characteristics, including empirical measures of the pharmacokinetic quality of each drug, this study quantifies impact of changes in therapeutic-market competition on incumbent products’ prices using fixed-effects regressions.
RESULTS: Empirical results indicate that greater competition is associated with lower net prices and higher rebates. Average net prices of incumbent drugs are 15% to 29% lower in relatively more competitive markets, while average rebates 15% to 26% are higher. Analyses incorporating pharmacokinetic quality suggest that the entry of a competitor with a one standard deviation higher quality score, measured in terms of the ADMET profile of a drug, can reduce incumbents’ net prices by 39% and increase rebates by 25%. Changes in list price are much less common and significant only among a small subset of products.
CONCLUSIONS: The findings suggest that greater competition generally reduces the financial rewards accruing to manufacturers without benefitting consumers via lower list prices. Standardized measures of pharmacokinetic quality offer a more precise approach for identifying competitors in pharmaceutical markets.