The Effect of Regulations Such as Price Controls on Medicine Prices: The Case of India

his paper examines the effect of price control regulations on medicine prices in India and how different socio-economic factors influence the coordination between pharmaceutical companies in the country from March 2007 until June 2015. I focus on two specific formulations of Paracetamol. The first one, 500mg formulation of the medicine which is under regulation and the second one, the 650mg, which is not regulated. By conducting different descriptive analyses along with applying Fixed Effects regression model it is found that there are collusion practices that are influenced differently by socio-economic determinants across different regions of India. Factors such as number of pharmacists and infant mortality rate have an effect on the level of coordination as higher number of pharmacists reduce the collusion, while higher infant mortality rate increases its level. Two subsample analyses serve as a robustness check. Their results support in overall the output from the main regression model. Moreover, the study contributes to the existing literature by providing an analysis of the effect of economic factors that have prior influence over corruption. By pointing out the possible reasons for the presence of collusion, the study aims to help out policy makers in the composition of more effective policies in the future.