Constructed Variable: Price Reduction of Regulated SKUs

SKU-Wise Price Reduction

The pharmaceutical firm gave us price data for the top 5 brands in each SKU. In the figure below, we plot the distribution of these brands in each SKU that had to reduce prices (refer chart below). When prices were below the cap, brands had to retain their current price level (no price increases were allowed). We can see from the distribution that over 400 brands had to retain their current price levels and at least that many lowered prices.

We calculate the market-weighted average price-cut of the top 5 brands per SKU, using their respective market shares as weights. We provide a sample calculation below (without disclosing brand names). For SKU Acyclovir 400mg, using the market shares of the top 5 brands as weights (38.85%, 23.07%, 13.12%, 9.15% and 8.62% respectively), and percentage price reduction (28.10%, 15.90%, 14.44%, 14.59% and 0.00% respectively), we compute the SKU’s price reduction to be 17.82%). In terms of the magnitudes of the price reductions themselves, the distribution of our price reduction measure across SKUs is exhibited below with majority of the SKUs undergoing a price reduction of 30% or below. We also find that the antibiotics and hypertension drugs go through the highest price reductions (and coincidentally these are the drugs that are detailed heavily by firms in India, based on interviews with the industry experts that we present in the paper).

Frequency of % Price Reduction – Top 5 Brands per SKU

PriceReductionCategory Frequency
0% - No Price Change 421
Upto 10% 110
(10% to 20%) 105
(20% to 30%) 83
(30% to 40%) 95
(40% to 50%) 51
(50% to 60%) 20
(60% to 70%) 6
(70% to 80%) 3
(80% to 90%) 3

Frequency of % Price Reduction – SKU Level

PriceReductionCategory Frequency
(0% to10%) 75
(10% to 20%) 59
(20% to 30%) 29
(30% to 40%) 12
(40% to 50%) 5