📉 Do more rivals mean lower drug prices?
Not always. In Portugal, even with price caps and multiple generic competitors, many drugs remained priced at or near their regulatory ceilings.
🧩 What was found
In a recent article published in Health Economics, Carolina Santos, Eduardo Costa, and Sara Machado show that when pharmaceutical companies repeatedly face the same rivals across different markets, they tend to develop a form of “mutual respect.”
👉 Instead of competing aggressively, firms hold back on price cuts to avoid retaliation elsewhere in their portfolio.
💊 Case study: statins in Portugal
- They analyzed the interactions between companies selling statin drugs between 2015 and 2017, treating each statin as a separate market.
- The effect is significant: a one standard deviation increase in multimarket contacts leads to 5.35% higher price-to-cap ratios.
⚖️ Why this matters
While price caps do prevent excessive pricing, they can also act as coordination anchors.
When companies repeatedly meet the same rivals across markets, this “mutual forbearance” means patients and health systems pay more than they would under truly competitive conditions.
🏛️ Policy implications
As the generic pharmaceutical industry continues to consolidate:
- Regulators need to consider not just competition in individual drug markets, but also how firms’ multimarket presence influences behavior across portfolios.
- This research highlights an important blind spot in pharmaceutical pricing regulations — one that should be addressed to secure genuine competition and real savings for healthcare systems.
📖 Read the paper here: https://onlinelibrary.wiley.com/doi/10.1002/hec.70029
🔖 Tag: Nova School of Business and Economics, CEGIST, Brown University School of Public Health