Competition matters

While the high price of branded drugs often gets a lot of attention in the public, few realize that after patent expiration, prices often plunge dramatically and high quality treatments are available for extremely affordable prices.  Granlund and Bergman (2018) estimate the size of this price reduction using data from Sweden.

In the long term, the price of generics is found to decrease by 81% when the number of firms selling generics with the same strength, form and similar package size is increased from 1 to 10. Nearly only competition at this fine-grained level matters; the effect of firms selling other products with the same active substance, but with different package size, form, or strength, is only a tenths as large. Half of the price reductions take place immediately and 70% within three months.

In short prices reductions are steep and rapid.


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