Consumer Information and Pharmaceutical Prices: Theory and Evidence*

Abstract

The impact of a reform that increased consumer information on brand name and generic pharmaceutical prices is analysed both theoretically and empirically. The theoretical results show that an increase in information likely reduces the price of brand name pharmaceuticals, while the results regarding generics are less clear. In the empirical part of the article, the introduction of the substitution reform in the Swedish pharmaceuticals market in October 2002 is used as a natural experiment regarding the effects of increased consumer information. The results clearly show that the reform has lowered the price of both brand name and generic pharmaceuticals.