Objectives: The aim of this paper is to discuss the mechanism underlying the pharmaceutical price gap and to estimate the relative profit margins of generic and brand-name drugs. Methods: Data were obtained from the drug list from the fifth to seventh waves of price adjustment and population claims data compiled by the National Health Insurance Database. Results: The analysis indicated that generic-to-brand price ratios and discount rates jointly determined generic-to-brand profit ratios. The profit margins of generic drugs were slightly higher than those of their brand-name counterparts. Competition between generic drugs reduced the generic-to-brand profit ratio, but therapeutic competition increased this ratio. Conclusions: The results of this study indicate that policy makers may select an appropriate generic-to-brand price ratio in order to improve resource allocation between generic and brand-name drug markets.
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