The relative importance of actual and potential competition: Empirical evidence from the pharmaceuticals market

We study actual and potential competition and other factors that determine price paths of brand-name drugs in the Swedish pharmaceuticals market. The results indicate that the price of the incumbent product is lowered by, potential competition, entry of (additional) generics; and the introduction of a so-called reference-price system. We also identify a 'ratchet' effect, through which price regulation makes entry-deterring limit-pricing credible.