Determining the structure of pharmaceutical industry in Iran

Abstract

Purpose

As the pharmaceutical industry is one of the key sectors of the health-care system, the identification of its structure is of particular importance. This paper aims to determine the structure of the pharmaceutical industry in Iran to provide appropriate solutions for pricing and regulation by policymakers. Iran is a growing pharmaceutical market with over $4bn in sales, so the supply side needs to be examined to meet the domestic consumption.

Design/methodology/approach

This research is a descriptive and retrospective analytical study which examines the Iranian pharmaceutical industry through library studies and using pharmaceutical data of the country’s Food and Drug Administration during 1992-2016. Due to data availability in firm level, the concentration ratio of N leading firms and the Herfindahl–Hirschman index are used to measure the concentration of the pharmaceutical market in 2014 and 2016.

Findings

The results show that pharmaceutical manufacturing, importing companies and distributing companies play roles in monopolistic competition market, loose oligopoly market and oligopoly market, respectively. For all companies, the magnitudes of Herfindahl–Hirschman indices indicate non-competitive settings. As a result, these companies set their own prices, and market demand affects their sales. In addition, demand for medicines is shaped in the form of supply-induced demand.

Research limitations/implications

This research was accomplished with no computational limitation. However, it was confined to only one country, one industry and the mentioned period of study.

Practical implications

The pharmaceutical manufacturers have no influence on medicine prices, and government pricing regulations lessen the market power of such market agents. However, the easy entry to and exit from market stimulate producers to participate in manufacturing activities. The pharmaceutical importers may expand their imports in response to entry new actors; however, the new entrants weaken the coordination on pricing decisions.

Social implications

As pharmaceutical distributers act in an oligopoly market, they can collude, reduce competition and lower the welfare of pharmaceutical consumers. In such conditions, high investment requirements and economies of scale may discourage the entry of new firms.

Originality/value

Although there are various studies on market structure in non-pharmaceutical industries, this study is a new effort to measure concentration in the Iranian pharmaceutical market and to determine its structure.

Citation

Emamgholipour, S. and Agheli, L. (2019), "Determining the structure of pharmaceutical industry in Iran", International Journal of Pharmaceutical and Healthcare Marketing, Vol. 13 No. 1, pp. 101-115. https://doi.org/10.1108/IJPHM-06-2017-0030