02 October 2015

Dynamic Aspects of Competition: Optimal Regulation of the Pharmaceutical Market

The market for prescription drugs is one of the most heavily regulated markets. In this empirical project, Anders Munk-Nielsen will create new knowledge on the pros and cons of this regulation, focusing on the following two aspects:

In Denmark, prices on generic drugs are fixed at auctions held every 14th day. These auctions have secured some of the lowest medical prices in the world but the system is plagued by price spikes, i.e. large but short-lived fluctuations in the price of the same medicament from week to week - sometimes in excess of 500 percent. The system is internationally unique and Anders will be the first investigate the causes and implications of the price spikes observed. To do this, he will create a novel model, which will also yield new insights for auction design more broadly.

Anders will also investigate the productivity gains from allowing free entry of pharmacies and thus increasing competition. Entry is restricted in Denmark, so he studies Norway. Anders will create a new model to compare the importance of two main channels determining firm productivity growth: entry and investments. In 2013, the Productivity Commission pointed to the Danish service sector’s slow productivity growth as a major societal challenge.

Grant recipient: Anders Munk-Nielsen