No price competition in pharmaceuticals

NHH-researcher, Kurt Brekke.

The law regulating pharmacies should secure users cheaper medicines. However, the market is controlled by three dominant pharmacy chains, leading to restricted competition and preventing prices from falling.

13.04.2007 - Sigrid Folkestad (Tekst) Trond Hansen (Foto)

Kurt Brekke.

- There is no price competition among pharmacies and chains, says NHH researcher, Kurt Brekke.

The big three
Almost all of the 580 pharmacies in Norway are owned by the three big chains: Vitus, Alliance and Apotek 1. These pharmacy chains are owned by pharmaceutical wholesale dealers with international linkages.

Brekke points out that pharmacies and wholesalers, in a long term perspective, will profit from high prices.

A new drug is normally protected for 20 years by a patent. After this time other companies can produce drugs which contain the same active ingredients under their own name. These are known as generic drugs, which have the same effect as the original, patented drugs.

Officials have tried many different mechanisms to hold the price level for pharmaceuticals at a low level. The pharmacy sector has repeatedly protested against these initiatives by the Norwegian Ministry of Health and Care Services.

No chance
"It is beyond reasonable doubt that the pharmacy association has been a good lobbyist", states the researcher.

"A calculation recently done by the Norwegian Medicines Agency reveals that pharmacies increased their gross profit by 50 per cent last year. Many believe that the only way to lower prices is to establish a multitude of independent pharmacies."

Do you agree on that?

"No, this has been tried long enough. Independent pharmacies have no chance in comparison to the large chains, only a limited number exist and they have no real impact on the price level. The only possible solution for officials is to make demand more price-elastic and eventually to stimulate the establishment of a new big player", says Brekke.

Bad for end-consumers
"This vertical integration of the market has removed the incentive to negotiate a lower purchase price of pharmacies", believes researcher Kurt Brekke of the Department of Economics.

"When pharmacies are owned on a large scale by wholesalers has this also a decreased motivation to benefit end-consumers in the form of lower prices for imported drugs."