The Swedish Pharmaceutical Market: Competition and Pricing Post-Deregulation

Abstract: This paper examines the Swedish market of over-the-counter (OTC) pharmaceuticals following the reform in 2009. The market is an oligopoly and the market concentration has increased over the recent years. Several impediments to price competition are present, including asymmetric information and significant barriers to entry. Firstly, simple regressions are performed to study whether the prices vary with the market structure overall. Secondly, the nested logit model (Berry, 1994) is applied to a subset of conventional and natural pharmaceuticals in order to estimate the demand elasticities. These are in turn used to calculate markups and Lerner indices to measure the extent of market power. While the paper presents some signs of increased prices in connection with less intense competition, these indications cannot be generalized. Market power is found to be present in market structures with a lower degree of competition, however there is insufficient evidence to infer that excessive markups are levied as a result of this.