Prescription drugs play an increasingly significant role in the Canadian healthcare
system. Drug spending accounts for a considerable share of total healthcare expenditure
and continues to be one of the fastest growing expenditure components in
Canada. But, drug manufacturers’ price setting behaviours are not well understood
in the literature.
I develop a framework of oligopoly theory with two-dimension product differentiation
based on a synthesis of the literature on the institutional history and development
of the Canadian pharmaceutical system. I find that: (1) The differentiation in
perceived quality between brand-name and generic drugs can explain the generic competition
paradox. The degree of the product differentiation can be pivotal in shaping
the brand-name drug manufacturers’ price setting behaviours in response to the shift
in patients’ preference and changes in government policies. (2) Copay and generic
drug price-cap policies are commonly adopted by the Canadian public drug plans to
contain drug reimbursement cost. Policy-makers should use caution when applying
these policies in combination or separately in order to reach the intended outcomes.
(3) The generic drug price-cap can elicit competition among brand-name drug manufacturers,
but it may need coordinated regulations on patented drug prices. Without
full coordination among major stakeholders and across jurisdictions, the benefits of
lowered drug prices for some can become additional costs for others.
I innovatively adopt the multilevel model to analyze the pharmaceutical market
structure and evaluate the net effect of the generic competition paradox. The empirical
research on the drug price dynamics is consistent with the predictions of the
previously developed theory. I find that: (1) More generic substitutes in a drug
molecule are associated with a net effect of increases in drug prices, after other contextual
variables are properly controlled for. (2) More therapeutic substitutes do not
have a net effect of lowering drug prices. (3) When a generic substitution policy
is in place, the studied brand-name drugs maintain net price premiums over their
generic substitutes. But, the net price premiums in the case when there is a generic
substitution policy are lower than those where there is no such policy.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:NSHD.ca#10222/13259 |
| Date | 21 January 2011 |
| Creators | Ren, Zhe (Jerry) |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
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