Market structure and pricing policy of antibiotic drugs in Thailand

Abstract

This study attempts to investigate the general characteristics of antibiotic drug industry, with emphasis on market structure as well as the pricing policy and to estimate the amount of money saved if generic drugs are encouraged to substitute the branded drugs. This study requires primary data to supplement the understanding about the market structure, therefore, the field survey was carried out and the data were collected so as to analyze the market structure and to estimte the amount of money saved derived from elasticity of substitution. It is found that antibiotic drugs market is not purely competitive in the sense of static microeconomics theory. The price competition in antibio-tic drugs is intensive. The overall success of generic druge is quite limited Most of the branded drug manufacturers are the market leaders. Moreover, even the patent life of the leading brands were expired, the branded products retain a large market share. In the case of pricing policy, the study found the existance of price discrimination amoung the generic drugs and branded drugs. The antibiotic drug industry may not practice price competition, but rather engage in other non-pricing competition mechanism. This study has tried to estimate the elasticity of substitution of branded drugs by generic drugs, considering the tight oligopoly market and dominant market, in 3 critieria as follows:a) no substitution between different sub-therapeutic class of drugs. b) perfect substitution between different sub-therapetic class of drugs. c) substitution among group of drugs classified according to patent life. This study has found that the elasticity of substitution of branded drugs by generic drugs is quite low. There is a prevalence of generic drugs, for which patents have expired. This study has shown the greater competition and lower levels of concentration. Some values of the elasticity of substitution of branded drugs by generic drugs, expecially among the dominant market and the new antibiotic drugs, are extremely high in the absolute value which has shown the distortion in this industry. As a result, the estimated amount of money saved derived from the substitution of branded drugs by generic drugs is quite low. The consumers loss from the antibiotic drugs in tight oligopoly market and the old antibiotic drugs. On the contrary, the consumers gain for those which gelonged to the dominant market and the new antibiotic drugs.