Estimating the discount elasticity of generic drugs  - a case study in the Portuguese pharmaceutical market

This thesis aims to understand the impact of discounts on medicine sales and calculate their elasticity. Using panel data with monthly observations from 22 groups of pharmacies, a Poisson model with fixed effects was applied to 20 medicines to estimate the relationship between the percentage of discount and the quantity sold, namely the elasticity of the discount. The analysis also incorporated variables such as number of competitors, seasonality, promotional campaigns, and out-of-stock periods. The results showed that, while discounts tend to stimulate sales, the magnitude of this effect varies according to the type of medicine. Chronic-use medications, for example, showed less sensitivity to discount variations, suggesting a more stable behavior of pharmacy groups and consequently of users in these cases. On the other hand, medications for non-chronic use, namely anti-inflammatories, were more sensitive to changes in the discount, displaying elasticities of 1.94 and 1.89. This study makes a valuable contribution to understanding pricing dynamics in the pharmaceutical sector. It suggests that laboratories, namely Generis, can optimize their discount strategies by considering not only the type of medicine but also factors such as the presence of competitors, seasonality, and stockouts.