[Competition between branded and generic drugs in Austria: evidence from the market for ACE inhibitors]

The market for pharmaceuticals in Austria is highly regulated and manufacturers cannot set prices freely after patent expiration of the pioneer drug.

We wanted to examine the effect of price regulation on price competition between branded and generic drugs in Austria.

We examined the Austrian market for ACE inhibitors and describe competitive dynamics by means of 6 indices. We compared our results with those of Grabowski and Vernon who studied the US market.

According to our analysis the competition amongst the producers of generic drugs is not great and consequently, compared to the USA, over time the prices for generic products decrease less and their market share increases less. This is due to a market-oriented system in the USA which waives most regulatory provisions. Our conclusions are in line with the findings by Danzon und Chao (2000) who argue that in a price-regulated market competitive dynamics are less strongly developed.

From a politico-economic view, the necessity of price regulations in the pharmaceutical market seems questionable, as price regulations generally also cause other negative effects, such as distorted economic incentives for research and development investments.