Reform-induced competition: Evaluating the impact on Swiss pharmacies and total drug costs

This paper explores the effect of increased competition on pharmacies induced by a regime change in two Swiss cities allowing physicians to self-dispense drugs. By merging detailed sales and survey data at the pharmacy level, a difference-in-differences estimation shows a significant and permanent loss of market share in prescribed drug revenue and profits. The decline is driven by drugs used for acute illnesses and is less pronounced for larger pharmacies. While generic drug sales decrease significantly, the more expensive brand-name drugs remain largely unaffected. I find evidence that pharmacies respond to increased competition by diversifying toward health services. Adding administrative physician data shows that the reform caused approximately CHF 19.5M in additional drug costs per year. My results demonstrate that more competition can result in higher drug costs for society.