Credence goods and market power: an econometric study on the Brazilian pharmaceutical industry

Fiuza, Eduardo P. S.; Lisboa, Marcos de B.

doi:10.1590/S0101-41612003000400001

Abstracts

Bearing in mind the market failures pointed out by the economic literature and following the international empirical evidence, and based on original micro data of the Brazilian pharmaceutical industry in the late 1990s, this article attempts to relate empirically drug prices in Brazil to some explaining variables. We find that, similarly to previous U.S. estimations, leading branded drugs accommodated share growth of the followers, turning towards a more inelastic market segment and raising their prices. On followers, in turn, a fall of the concentration index in a market had ambiguous effects: if due to reduced leader power, followers raised their relative prices; if due to a tougher competition within the fringe, their relative prices tended to go down.

generic drugs; pharmaceutical industry; credence goods

No presente artigo procuramos, tendo em mente as imperfeições de mercado apontadas pela literatura e pela experiência internacional, e com base em dados originais da indústria farmacêutica, relacionar empiricamente o preço de medicamentos no Brasil com algumas variáveis explicativas. Encontramos que, consoante com estimações anteriores da experiência norte-americana, os medicamentos líderes no Brasil, antes da lei que instituiu o medicamento genérico, acomodavam o avanço de produtos similares (do mesmo princípio ativo, porém sem o teste de bioequivalência) e se recolhiam a segmentos inelásticos do mercado, elevando seus preços. Os similares, ao contrário, ao perderem mercado, reduziam seus preços em relação ao líder, de modo que uma redução no índice de concentração do mercado total de um princípio ativo tem efeitos ambíguos sobre seus preços, dependendo se a causa é uma queda da participação do líder ou um rearranjo dentre os seguidores.

medicamentos genéricos; indústria farmacêutica; bens credenciais

Credence goods and market power: an econometric study on the Brazilian pharmaceutical industry

Eduardo P. S. Fiuza^I; Marcos de B. Lisboa^II

^IFrom Instituto de Pesquisa Econômica, Diretoria de Estudos Macroeconômicos (DIMAC/ IPEA) and Fundação Getúlio Vargas, Escola de Pós-Graduação em Economia (EPGE/FGV)

^IIFrom EPGE/FGV

ABSTRACT

Bearing in mind the market failures pointed out by the economic literature and following the international empirical evidence, and based on original micro data of the Brazilian pharmaceutical industry in the late 1990s, this article attempts to relate empirically drug prices in Brazil to some explaining variables. We find that, similarly to previous U.S. estimations, leading branded drugs accommodated share growth of the followers, turning towards a more inelastic market segment and raising their prices. On followers, in turn, a fall of the concentration index in a market had ambiguous effects: if due to reduced leader power, followers raised their relative prices; if due to a tougher competition within the fringe, their relative prices tended to go down.

Key words: generic drugs, pharmaceutical industry, credence goods.

JEL Classification

L65, C23, D82, I18, L15, L43

RESUMO

No presente artigo procuramos, tendo em mente as imperfeições de mercado apontadas pela literatura e pela experiência internacional, e com base em dados originais da indústria farmacêutica, relacionar empiricamente o preço de medicamentos no Brasil com algumas variáveis explicativas. Encontramos que, consoante com estimações anteriores da experiência norte-americana, os medicamentos líderes no Brasil, antes da lei que instituiu o medicamento genérico, acomodavam o avanço de produtos similares (do mesmo princípio ativo, porém sem o teste de bioequivalência) e se recolhiam a segmentos inelásticos do mercado, elevando seus preços. Os similares, ao contrário, ao perderem mercado, reduziam seus preços em relação ao líder, de modo que uma redução no índice de concentração do mercado total de um princípio ativo tem efeitos ambíguos sobre seus preços, dependendo se a causa é uma queda da participação do líder ou um rearranjo dentre os seguidores.

Palavras-chave: medicamentos genéricos, indústria farmacêutica, bens credenciais.

Full text available only in PDF format.

Texto completo disponível apenas em PDF.

(Recebido em junho de 2002. Aceito para publicação em julho de 2003.)

This research has been sponsored by the Brazilian Fund for the Defense of Diffuse Rights. We gratefully acknowledge Paulo Correa, Cláudia Vidal, Cristiane Schmidt, Kélvia Frota and Sidney Rodrigues, from the Brazilian Ministry of Finance, for valuable cooperation; César Dalston, from the Federal Revenue Secretariat, for his kind and prompt help on classifying drugs in our sample according to official tariff categories; Marcos de Barros, from Fundação Getúlio Vargas, for his excellent work on organizing the data bank; and to Ingreed Valdez, Ana Paula Razal and Adrian Herringer, from IPEA, for their assistance on data manipulation. We are also grateful to Afonso Arinos Neto, Eduardo Pontual Ribeiro, Naércio Menezes-Filho and participants of seminars at PUC-RJ, EPGE, SEAE/MF, and IPEA, and LAMES and LACEA meetings, and to two anonymous referees of this journal for valuable comments and suggestions The usual caveat applies.

ANDRADE, M.; LISBOA, M. Regulação do setor saúde no Brasil Rio de Janeiro: EPGE/FGV, 2001.
BALTAGI, Badi H. Simultaneous equations with error components. Journal of Econometrics, n. 17, p. 189-200, 1981.
BERNDT, Ernst; PINDYCK, Robert; AZOULAY, Pierre. Consumption externalities and diffusion in pharmaceutical markets: antiulcer drugs. Cambridge, Mass.: NBER, 2000.
CAVES, Richard E.; WHINSTON, Michael D.; HURWITZ, Mark A. Patent expiration, entry and competition in the U.S. pharmaceutical industry. Brookings Papers on Economic Activity, 1991. Special issue.
DARBY, Michael; KARNI, Edi. Free Competition and the Optimal Amount of Fraud. Journal of Law and Economics, n. 16, p. 67-88, 1973.
Di Masi, A. et al. Cost of innovation in the pharmaceutical industry. Journal of Health Economics, v. 10, n. 2, p. 107-142, 1991.
FAGAN, Perry L. As gigantes farmacêuticas: prontas para o século XXI? Cambridge, Mass.: Harvard Business School, 1998. Note 9-698-070.
FRANK, Richard; SALKEVER, David. Pricing, patent loss and the market for pharmaceuticals Cambridge, Mass.: NBER, 1991.
_______. Generic entry and the pricing of pharmaceuticals. Cambridge, Mass.: NBER, 1995. (Working Paper; 5306).
GRABOWSKI, Henry G.; VERNON, John M. Brand loyalty, entry, and price competition in pharmaceuticals after the 1984 Drug Act. Journal of Law and Economics, v. 35, n. 2, p. 331-350, 1992.
HAUSMAN, J. A. Specification tests in econometrics. Econometrica, v. 46, n. 6, p. 1251-71, 1978.
HELLERSTEIN, Judith. The demand for post-patent prescription pharmaceuticals. Cambridge, Mass.: NBER, 1994. (Working Paper; 4981).
HURWITZ, Mark; CAVES, Richard. Persuasion or information? Promotion and the shares of brand name and generic pharmaceuticals. Journal of Law & Economics, v. 31, n. 2, p. 299-320, 1988.
LEFFLER, Keith. Persuasion or information? The economics of prescription drug advertising. Journal of Law and Economics, v. 24, n. 1, p. 5-74, 1981.
LEVIN, Richard; KLEVORICK, Alvin; NELSON, Richard; WINTER, Sidney. Appropriating the returns from industrial research and development. Brookings Papers on Economic Activity, v. 3, n. 0, p. 783-820, 1987.
LICHTENBERG, Frank R. Do (more and better) drugs keep people out of hospitals? American Economic Review, v. 86, n. 2, p. 384-388, 1996a.
_______. The effect of pharmaceutical utilization and innovation on hospitalization and mortality. Cambridge, Mass.: NBER, 1996b. (Working Paper; 5418).
_______. Pharmaceutical innovation, mortality reduction and economic growth. Cambridge, Mass.: NBER, 1998. (Working Paper; 6569).
_______. The benefits and costs of new drugs: evidence from the 1996 Medical Expenditure Panel Survey. Cambridge, Mass.: NBER, 2001. (Working Paper; 8147).
LISBOA, Marcos B.;MOREIRA, Humberto. On capitation contracts and endogenous altruism: the managed care. Rio de Janeiro, 2000. Mimeografado.
LOYOLA, Maria Andréa. Médicos e curandeiros: conflito social e saúde. São Paulo: DIFEL, 1984.
MANSFIELD, Edwin. Patents and innovation: an empirical study. Management Science, v. 32, n. 2, p. 173-181, 1986.
NELSON, Phillip. Information and consumer behavior. Journal of Political Economy, n. 78, p. 311-329, 1970.
NOGUÉS, Júlio. Patents and pharmaceutical drugs: understanding the pressures on developing countries. Washington (D.C.): World Bank, 1990. (International Economics Department Working Paper Series; 502).
PELTZMAN, Sam. An evaluation of consumer protection legislation: the 1962 drug amendments. Journal of Political Economy, v. 81, n. 5, p. 1049-91, 1973.
PEPE, Vera L. E.; VERAS, Cláudia M. T. A prescrição médica. Instituto de Medicina Social - UERJ, 1995. (Série Estudos em Saúde Coletiva, 111).
PhRMA - Pharmaceutical Researchers and Manufacturers Association. Pharmaceutical industry profile 2000, 2000. Downloadable from: http://www.phrma.org
QUEIROZ, Sérgio; GONZÁLEZ, Alexis. Mudanças recentes na estrutura produtiva da indústria farmacêutica. In: NEGRI, Barjas; Di Giovanni, Geraldo (eds.), Brasil: radiografia da saúde. Campinas, SP: IE-UNICAMP, 2001.
RÊGO, Elba C.L. Políticas de regulação do mercado de medicamentos: a experiência internacional. Revista do BNDES, v. 7, n. 14, p. 367-400, 2000.
RUPPRECHT, Fréderic.Le marché du médicament: évolutions depuis 1980. In: MOUGEOT, M. (org.), Régulation du systeme de santé. Paris: La Documentation Française, 1999.
SAKAKIBARA, Mariko; BRANSTETTER, Lee. Do stronger patents induce more innovation? Evidence from the 1988 Japanese patent law reforms. Rand Journal of Economics, v. 32, n. 1, p. 77-100, 2001.
SILVA, Ricardo I. Indústria farmacêutica brasileira: estrutura e a questão dos preços de transferência. 1999. Unpublished Doctoral Dissertation - Escola de Quimica. UFRJ.
TEMIN, Peter. Taking your medicine: drug regulation in the United States. Cambridge, Mass.: Harvard University Press, 1980.
TIROLE, Jean. The theory of industrial organization Cambridge, Mass.: MIT Press, 1988.
VISCUSI, W. Kip; VERNON, John; HARRINGTON, JR., Joseph E. Economic of regulation and antitrust 2^nd ed. Cambrige, Mass.: MIT Press, 1995.

Publication Dates

Publication in this collection
13 Oct 2009
Date of issue
Dec 2003

History

Accepted
July 2003
Received
June 2002

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

[1] ANDRADE, M.; LISBOA, M. Regulação do setor saúde no Brasil Rio de Janeiro: EPGE/FGV, 2001.

[2] BALTAGI, Badi H. Simultaneous equations with error components. Journal of Econometrics, n. 17, p. 189-200, 1981.

[3] BERNDT, Ernst; PINDYCK, Robert; AZOULAY, Pierre. Consumption externalities and diffusion in pharmaceutical markets: antiulcer drugs. Cambridge, Mass.: NBER, 2000.

[4] CAVES, Richard E.; WHINSTON, Michael D.; HURWITZ, Mark A. Patent expiration, entry and competition in the U.S. pharmaceutical industry. Brookings Papers on Economic Activity, 1991. Special issue.

[5] DARBY, Michael; KARNI, Edi. Free Competition and the Optimal Amount of Fraud. Journal of Law and Economics, n. 16, p. 67-88, 1973.

[6] Di Masi, A. et al. Cost of innovation in the pharmaceutical industry. Journal of Health Economics, v. 10, n. 2, p. 107-142, 1991.

[7] FAGAN, Perry L. As gigantes farmacêuticas: prontas para o século XXI? Cambridge, Mass.: Harvard Business School, 1998. Note 9-698-070.

[8] FRANK, Richard; SALKEVER, David. Pricing, patent loss and the market for pharmaceuticals Cambridge, Mass.: NBER, 1991.

[9] _______. Generic entry and the pricing of pharmaceuticals. Cambridge, Mass.: NBER, 1995. (Working Paper; 5306).

[10] GRABOWSKI, Henry G.; VERNON, John M. Brand loyalty, entry, and price competition in pharmaceuticals after the 1984 Drug Act. Journal of Law and Economics, v. 35, n. 2, p. 331-350, 1992.

[11] HAUSMAN, J. A. Specification tests in econometrics. Econometrica, v. 46, n. 6, p. 1251-71, 1978.

[12] HELLERSTEIN, Judith. The demand for post-patent prescription pharmaceuticals. Cambridge, Mass.: NBER, 1994. (Working Paper; 4981).

[13] HURWITZ, Mark; CAVES, Richard. Persuasion or information? Promotion and the shares of brand name and generic pharmaceuticals. Journal of Law & Economics, v. 31, n. 2, p. 299-320, 1988.

[14] LEFFLER, Keith. Persuasion or information? The economics of prescription drug advertising. Journal of Law and Economics, v. 24, n. 1, p. 5-74, 1981.

[15] LEVIN, Richard; KLEVORICK, Alvin; NELSON, Richard; WINTER, Sidney. Appropriating the returns from industrial research and development. Brookings Papers on Economic Activity, v. 3, n. 0, p. 783-820, 1987.

[16] LICHTENBERG, Frank R. Do (more and better) drugs keep people out of hospitals? American Economic Review, v. 86, n. 2, p. 384-388, 1996a.

[17] _______. The effect of pharmaceutical utilization and innovation on hospitalization and mortality. Cambridge, Mass.: NBER, 1996b. (Working Paper; 5418).

[18] _______. Pharmaceutical innovation, mortality reduction and economic growth. Cambridge, Mass.: NBER, 1998. (Working Paper; 6569).

[19] _______. The benefits and costs of new drugs: evidence from the 1996 Medical Expenditure Panel Survey. Cambridge, Mass.: NBER, 2001. (Working Paper; 8147).

[20] LISBOA, Marcos B.;MOREIRA, Humberto. On capitation contracts and endogenous altruism: the managed care. Rio de Janeiro, 2000. Mimeografado.

[21] LOYOLA, Maria Andréa. Médicos e curandeiros: conflito social e saúde. São Paulo: DIFEL, 1984.

[22] MANSFIELD, Edwin. Patents and innovation: an empirical study. Management Science, v. 32, n. 2, p. 173-181, 1986.

[23] NELSON, Phillip. Information and consumer behavior. Journal of Political Economy, n. 78, p. 311-329, 1970.

[24] NOGUÉS, Júlio. Patents and pharmaceutical drugs: understanding the pressures on developing countries. Washington (D.C.): World Bank, 1990. (International Economics Department Working Paper Series; 502).

[25] PELTZMAN, Sam. An evaluation of consumer protection legislation: the 1962 drug amendments. Journal of Political Economy, v. 81, n. 5, p. 1049-91, 1973.

[26] PEPE, Vera L. E.; VERAS, Cláudia M. T. A prescrição médica. Instituto de Medicina Social - UERJ, 1995. (Série Estudos em Saúde Coletiva, 111).

[27] PhRMA - Pharmaceutical Researchers and Manufacturers Association. Pharmaceutical industry profile 2000, 2000. Downloadable from: http://www.phrma.org

[28] QUEIROZ, Sérgio; GONZÁLEZ, Alexis. Mudanças recentes na estrutura produtiva da indústria farmacêutica. In: NEGRI, Barjas; Di Giovanni, Geraldo (eds.), Brasil: radiografia da saúde. Campinas, SP: IE-UNICAMP, 2001.

[29] RÊGO, Elba C.L. Políticas de regulação do mercado de medicamentos: a experiência internacional. Revista do BNDES, v. 7, n. 14, p. 367-400, 2000.

[30] RUPPRECHT, Fréderic.Le marché du médicament: évolutions depuis 1980. In: MOUGEOT, M. (org.), Régulation du systeme de santé. Paris: La Documentation Française, 1999.

[31] SAKAKIBARA, Mariko; BRANSTETTER, Lee. Do stronger patents induce more innovation? Evidence from the 1988 Japanese patent law reforms. Rand Journal of Economics, v. 32, n. 1, p. 77-100, 2001.

[32] SILVA, Ricardo I. Indústria farmacêutica brasileira: estrutura e a questão dos preços de transferência. 1999. Unpublished Doctoral Dissertation - Escola de Quimica. UFRJ.

[33] TEMIN, Peter. Taking your medicine: drug regulation in the United States. Cambridge, Mass.: Harvard University Press, 1980.

[34] TIROLE, Jean. The theory of industrial organization Cambridge, Mass.: MIT Press, 1988.

[35] VISCUSI, W. Kip; VERNON, John; HARRINGTON, JR., Joseph E. Economic of regulation and antitrust 2^nd ed. Cambrige, Mass.: MIT Press, 1995.