Reference pricing in the presence of pseudo-generics

This paper looks at producers of branded and generic pharmaceuticals' pricing decisions under two possible reimbursement schemes-reference pricing and fixed percentage reimbursement-and under two settings-one where the branded producer only sells the (off-patent) branded pharmaceutical and another where, in addition, it may also sell its own generic version, a so called pseudo-generic. We find different pricing responses from firms under the two reimbursement schemes and across the two settings analysed (with or without a pseudo-generic), and show that pseudo-generics may have an anticompetitive effect. Our results have important policy implications such as showing that the presence of pseudo-generics reinforces reference pricing's advantages over alternative reimbursement schemes.