Review of Industrial Organization 19: 425–435, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
The Impact of Generic Drug Competition on Brand
Name Market Shares – Evidence from Micro Data
, MATS A. BERGMAN
and NIKLAS RUDHOLM
Department of Economics, Umeå University, SE-901 87 Umeå, Sweden
Swedish Competition Authority and The Research Institute of Industrial Economics, Box 5501,
SE-114 85 Stockholm, Sweden
Abstract. This paper analyses how market shares for brand name drugs are affected by generic
competition. The analysis is based on micro data for twelve different original drugs, which are all
subject to generic competition. For ﬁve of these drugs, we ﬁnd that the price of the original relative to
the average price of the generic substitutes signiﬁcantly affects the market share of the original drug.
In addition, the introduction of a so called “reference price” system appears to have had a signiﬁcant
impact on the market shares of ﬁve original drugs.
Key words: Micro data, patent expiration, pharmaceutical industry.
JEL Classiﬁcations: L65, I11.
Throughout the industrialized world, the cost for pharmaceutical drugs raise con-
cern. Potentially, these costs could be reduced if government regulations could
foster a more powerful competition between the original manufacturers and the
manufacturers of generic substitutes.
The Swedish pharmaceuticals market is regulated in the sense that the prices
of prescription drugs, which are subsidized by the government, are determined
by negotiations between the producers of these pharmaceutical products and the
regulatory authority. Once the price has been set, the regulatory authority will
not in general allow large price increases, unless the ﬁrm can show that its costs
have increased by a similar magnitude. The prices of pharmaceutical products are,
nevertheless, high during patent protection and can be expected to be relatively
close to the monopoly price. When patents expire, and generic products enter a
market, the reference price system becomes effective. The purpose of this system
is to stimulate the producers of drugs, and particularly the producers of brand name
drugs, to lower their prices in order to reduce the costs of medical subsidies facing
The authors would like to thank Mårten Palme, Magnus Wikström and two anonymous referees
for helpful comments and suggestions. A research grant from the Swedish Competition Authority is