Pharmaceutical Price Controls and Entry Strategies

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Abstract
This paper examines the use of price controls on pharmaceuticals, while controlling for both market structure and of firm (and product) characteristics, in estimating the extent and timing of the launch of new drugs around the world. Price controls are found to have a statistically and quantitatively important effect on pharmaceutical launches. Drugs invented by firms headquartered in countries that use price controls reach fewer markets and take longer to diffuse than products that originate in countries without price controls. Price controls have a non-uniform impact on firms in different countries; in particular, Italian and Japanese firms tend to introduce their products in price controlled markets more quickly than American or British firms. Companies delay launch into price-controlled markets, and are less likely to introduce their products in additional markets after entering a country with price controls. Overall, the results suggest that a country's use of price controls not only has a substantial impact on entry into that market, but into other countries as well.