The interaction effect of price-cap regulation and competition on price: an Indian case study.

Using data on the Indian pharmaceutical market, the effects of competition, regulation and the interaction effect of competition and regulation was investigated. The used data included data on prices, sales, and therapeutic purposes of multiple medicine sold in India. Submarkets were defined through therapeutic purposes and drug type to determine relative prices. The regression analyses show that high concentrated markets – nearing perfect competition – on average have a higher normalized price. This indicates that in these markets the price dispersion is high, this is especially the case in unregulated markets. Furthermore, regulation interacting with higher competition results in higher relative prices. This might be evidence that regulation hinders dynamic competition, but these results must be interpreted with care. As evidence also points to the possibility of regulation not being exogenous, and competition being related with higher normalized prices. The results provide evidence that regulation is associated with higher relative prices, this can be seen as evidence of price collusion or further supporting the claim that regulation is not exogenous.