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Seminarios académicos y conferencias

José Ignacio Cuesta, Stanford University

"Quality Regulation and Competition: Evidence from Pharmaceutical Markets"

Coautoreado con Juan Pablo Atal y Morten Saethre

30 Junio 2021 - 15:30 hrs.

Vía Zoom

Abstract: Quality regulation attempts to ensure quality and to foster price competition by reducing vertical differentiation, but may also have unintended consequences through its effects on market structure. We study this trade-off in the context of pharmaceutical bioequivalence, which is the primary quality standard for generic drugs. Exploiting the staggered phase-in of bioequivalence requirements in Chile, we show that stronger quality regulation decreased the number of drugs in the market by 25% and increased average prices by 10%. These adverse effects were concentrated among small markets. Our results suggest that the intended effects of quality regulation on price competition through increased (perceived) quality of generics were overturned by adverse competitive effects arising from the costs of complying with the regulation. We estimate a structural model with endogenous entry and certification allowing us to perform counterfactual simulations investigating the scope for improving policy implementation.