Impacts of Pharmaceutical Price Controls on Pricing, Sales, and Market-level Quality: Evidence from India

With the goal of driving down drug costs, governments across the globe have instituted various forms of pharmaceutical price control policies. Understanding the impacts of such policies is particularly important in low- and middle-income countries (LMICs), where lack of insurance coverage means that prices can serve as a barrier to access for patients. This dissertation aims to provide new theoretical and empirical evidence on the effects of one implementation of pharmaceutical price controls, in which the Indian government placed price ceilings on a set of essential medicines. Using a unique data set on pharmaceutical quality in the Indian market, I first provide evidence that pharmaceutical manufacturers in this setting are not of equal quality. Instead, multinational and large, exporting generics firms produce higher-quality medicines than those produced by small, local generics manufacturers. I then describe a theoretical model of vertically differentiated firms in oligopolistic competition, and show how a price ceiling in this setting, even if only binding on high-priced firms, can lead to broadly declining prices and shift firm market share away from low-priced firms. Last, using a set of national retail pharmaceutical sales and pricing data from 2010-2015 and panel data methods, I test the predictions of the theoretical model empirically, examining impacts of an implementation of pharmaceutical price ceilings in the Indian market between 2013 and 2014. I find that the legislation resulted in broadly declining prices amongst both directly-impacted products and competing products. However, the legislation also led to decreased sales of price-controlled and closely related products, preventing trade that would have otherwise occurred. The sales of small, local generics manufacturers were most impacted by the legislation, seeing a 14.5% decrease in market share and a 5.3% decrease in sales. These products tend to be inexpensive and important for consumer access, but they are also of lower average quality, thus consumer welfare impacts are ambiguous. Last, I provide evidence that the legislation impacted consumer types differentially. The benefits of the legislation were largest for quality-sensitive consumers, while the downsides largely affected poor and rural consumers, two groups already suffering from low access to medicines.