Umbrella branding in pharmaceutical markets.

Umbrella branding is a marketing practice whereby multi-product firms leverage their reputation across different product categories. The paper investigates how advertising in the market for non-prescription drugs affects the decision to buy prescription drugs from the same firm. To estimate the effects of umbrella branding, I exploit the fact that consumer-directed advertising of prescription drugs is prohibited in Germany and identify advertising spillovers with an instrumental variable that builds on exogenous seasonality in the non-prescription drug industry. Umbrella branding results in market expansion, particularly for generic firms, and can have a positive effect on consumer welfare in under-treated therapeutic areas.

Cross-national drug price comparisons with economic weights in external reference pricing in Germany.

BACKGROUND: Since 2012, the pharmaceutical reimbursement legislation in Germany has been applying external reference pricing that uses country-specific economic weights for foreign prices. However, the law does not specify technical details. Therefore, we develop a proposal on how national income weights can be taken into consideration. AREAS COVERED: We develop weighting schemes that draw on gross domestic product per capita and adjust for purchasing power parities and exchange rates. In a second step, we populate the weighting schemes with economic data as well as with the price data for a pharmaceutical product (abiraterone acetate). Weighting the price of abiraterone acetate by gross domestic product per capita indicates potential price differentials of up to 43 percentage points across European prices in the German basket. EXPERT COMMENTARY: The weighting of foreign pharmaceutical prices by economic indicators, i.e. gross domestic product per capita, can capture economic differences across countries. It would also allow for differential Ramsey pricing which might foster innovation.

Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals.

Health insurance companies curb price-insensitive behavior and the moral hazard of insureds by means of cost-sharing, such as tiered co-payments or reference pricing in drug markets. This paper evaluates the effect of price limits - below which drugs are exempt from co-payments - on prices and on demand. First, using a difference-in-differences estimation strategy, we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand-name drugs in the German reference price market. Second, estimating a nested-logit demand model, we show that consumers appreciate co-payment exempt drugs and calculate lower price elasticities for brand-name drugs than for generics. This explains the different price responses of brand-name and generic drugs and shows that price-related co-payment tiers are an effective tool to steer demand to low-priced drugs.

The welfare impact of parallel imports: a structural approach applied to the German market for oral anti-diabetics.

We investigate the welfare impact of parallel imports using a large panel dataset containing monthly information on sales, ex-factory prices, and further product characteristics for all 649 anti-diabetic drugs sold in Germany between 2004 and 2010. We estimate a two-stage nested logit model of demand, and on the basis of an oligopolistic model of multi-product firms, we then recover the marginal costs and markups. We finally evaluate the effect of the parallel imports' policy by calculating a counterfactual scenario without parallel trade. According to our estimates, parallel imports reduce the prices for patented drugs by 11% and do not have a significant effect on prices for generic drugs. This amounts to an increase in the demand-side surplus by €19 million per year (or €130 million in total), which is relatively small compared with the average annual market size of around €227 million based on ex-factory prices. The variable profits for the manufacturers of original drugs from the German market are reduced by €18 million (or 37%) per year when parallel trade is allowed, yet only one third of this difference is appropriated by the importers.