Effect of price caps and reference pricing on generics entry – GABI


A fascinating article on GABI Online and study written by researchers on the effect of price caps and reference pricing on generics entry. Another study is also available here.

The key points (quotes from the article):

Question: how the use of a price cap along with reference pricing affects the entry of generics after patent expiry?


  • For reference pricing to stimulate generics entry, the price effect needs to be sufficiently small relative to the demand effect.
  • If price cap regulation is introduced, the negative effect of reference pricing on generics entry can be reversed, and that reference pricing is more likely to result in cost savings than under free pricing.
  • If the price cap is sufficiently strict, introducing reference pricing may actually increase the number of generic drugs on the market.
  • The reason for this is that binding price cap regulation reduces the brand-name price difference between reimbursement schemes with and without reference pricing. Generics makers may therefore obtain higher market shares under reference pricing. Reference pricing is more likely to stimulate generics entry and facilitate cost savings when prices are regulated than in the free pricing equilibrium.

These studies show the price dynamics in the pharmaceutical markets and the impact of price control tool ont generics entry.


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