Review of Industrial Organization 19: 351–364, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
Entry and the Number of Firms in the Swedish
Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Abstract. This paper analyses the factors that determine entry into the Swedish pharmaceuticals
market. The analysis is based on panel data for 22 different substances covering the years 1972 to
1996. The results show that proﬁt opportunities in a particular market have a positive impact on entry.
In addition, there is some evidence suggesting that the length of the patent protection period has a
negative impact on entry.
Key words: Entry, number of ﬁrms, panel data, pharmaceutical industry.
JEL Classiﬁcations: L65, I11.
This paper concerns generic entry into the Swedish pharmaceuticals market.
Its purpose is to study the factors determining entry into and the structure of the
pharmaceuticals market. One important factor is likely to be the possibility for
an entrant to make proﬁts. The pharmaceutical market, however, is a regulated
market and these regulations may have profound impacts on the proﬁt opportun-
ities of potential entrants. One regulation that might affect entry is the Swedish
reference price system introduced in 1993, which sets the reference price equal to
the price of the cheapest generic drug on the market plus ten per cent. Costs above
this reference price must be borne by the consumer. If the maximum sustainable
price difference is ten per cent, a decrease in generic entry could result from the
introduction of the reference price system. The worst case scenario is if generic
The author would like to thank Linda Andersson, Thomas Aronsson, Roger Axelsson, Kurt
Brännäs, Jörgen Hellström, Karl-Gustaf Löfgren, Mårten Palme, Magnus Wikström and two an-
onymous referees for reading and making comments on this paper. A research grant from the Swedish
Competition Authority is gratefully acknowledged.
A longer version of this paper containing more detailed information can be found at
Generic entry is deﬁned as the introduction of a new pharmaceutical drug sharing the same
seven ﬁgure ATC-code (as deﬁned by the Swedish Medical Products Agency) as a brand name drug
sold in the Swedish Pharmaceuticals market. The deﬁnition of generic competition follows directly
as the competition caused by such entry.