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Quality Regulation and Competition: Evidence from Pharmaceutical Markets

We study the equilibrium effects of quality regulation on market outcomes by exploiting the staggered phase-in of bioequivalence requirements for generic drugs in Chile. While the objective of the regulation was to increase the perceived quality of generics to reduce vertical differentiation and enhance price competition, we find mostly adverse effects. Even if a large number of drugs obtained the quality certification mandated by the regulation, we estimate that the number of drugs in the market decreased by 13% as a result of the policy. Moreover, we find that prices increased on average by 13% as well as no significant effects on the market share of generics. These adverse effects were mostly concentrated in molecules with small market size. Put together, our results suggest that the intended effects of the regulation on competition through increased (perceived) quality of generics were overturned by adverse competitive effects arising from the costs of complying with the regulation.

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Subject

Evaluación de impacto | Salud

País / Región

Chile

URI

https://scioteca.caf.com/handle/123456789/1211

Date

2018-06

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6.1 Documentos de trabajo en investigación socioeconómica

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CC-BY-NC
Except where otherwised noted, this item's license is described as CC-BY-NC
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quality-regulation-and-competition-evidence-from-pharmaceutical-markets.pdf (2.45 MB)

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CAF

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