Economic Analysis of Market Expansion Re-pricing: Impact on Government Price Control of Antihypertensive Pharmaceuticals

The purpose of this paper is to quantitatively evaluate the impact of market expansion re-pricing, a government regulation on pharmaceuticals that recorded bigger sales than expected, and when targeted, prices are reduced by up to 25%. The government has wanted to use this system to control pharmaceutical costs, but pharmaceutical companies have worried about the reduction in revenues. The analysis is conducted for the antihypertensive pharmaceutical market that includes ARTIST and MAINTATE, which were targeted in April 2012, and the following points are clarified. First, using hedonic analysis, we estimate the additional price reductions that result from market expansion re-pricing. The result is that ARTIST is 5.5 yen lower than the price determined based on market transactions, and MAINTATE is 2.5 yen lower. Second, demand function is estimated based on a discrete choice model. The price elasticity of demand calculated based on the estimated parameters is 14.4 for ARTIST and 18.8 for MAINTATE. This result shows that consumers in the antihypertensive market are very sensitive to price changes. Finally, a simulation is conducted to determine the market structure in a counterfactual situation where there is no market expansion re-pricing. As a result of a significant reduction in pharmaceutical prices, ARTIST and MAINTATE increase their market share by 30% and sales by 15%, and so the overall effect on pharmaceutical cost control in the antihypertensive market is only 0.18%. Furthermore, we conduct the simulation adapting another scenario where only non-generic pharmaceuticals are subject to market expansion re-pricing. The result shows that it is possible to achieve greater pharmaceutical price controls than those actual stipulated in the regulations.