By: Alexander Elbittar,[1] Carlos Lever,[2] Diana Plascencia[3] & Rubén Guerrero.[4]
In response to persistent concerns over high prices and limited access to medicines in Costa Rica, the Commission to Promote Competition (“COPROCOM”) conducted a comprehensive market study of the pharmaceutical sector.[5] This initiative has potentially significant social and economic impact, as medicines represent over 40 percent of household health spending, disproportionately affecting lower-income populations. The study identified key structural and regulatory barriers, such as low approvals for any change in a distributor’s drug portfolio, limited penetration of unbranded generics, and lack of regional regulatory harmonization, as core drivers of weak competition and high prices. Additionally, the country’s small population and middle-to-high income classification lead to higher wholesale prices.
To address these issues, COPROCOM proposed a series of pragmatic reforms: streamlining drug registration for products approved in trusted jurisdictions; promoting confidence in unbranded generics through requiring “unbranded” prescriptions; empowering pharmacists to make substitutions to generics; aligning national regulations with regional standards; and promoting regulatory convergence with neighboring countries. It also recommended strengthening the public health sector’s role in procurement while treating the private market as complementary. These interventions aim to boost market efficiency, reduce prices, and enhance equitable access to essential medicines, contributing to the long-term sustainability of Costa Rica’s healthcare system.
Costa Rica’s pharmaceutical market is segmented into two distinct channels — public and private — each with its own competitive dynamics. The public sector institutional market is led by the Costa Rican Social Security Fund (“CCSS”) which operates as a centralized monopsony using public tenders, where price competition is limited to the procurement stage and unbranded generics compete on an equal basis. Patients receive medicines at no monetary cost, although getting a prescription requires an appointment with a public sector doctor, with delays that have been increasing for years. In contrast, the private market is fragmented and consumer-driven, marked by significant price dispersion, weak price transparency, brand loyalty, and limited generic substitution. These differences mean that policy interventions must be tailored: institutional reforms should focus on improving procurement efficiency and formulary updates, while private market measures should enhance transparency, consumer trust, and regulatory alignment to boost effective competition.
Costa Rica’s regulatory approach to pharmaceutical markets diverges fundamentally from international models in both scope and intensity of intervention. Unlike jurisdictions that actively shape market dynamics through enforcement and policy tools, Costa Rica relies predominantly on ex post competition law enforcement with limited regulatory instruments. For example, in the United Kingdom, the Competition and Markets Authority (CMA) has pursued investigations into excessive pricing, signaling strong deterrence against exploitative conduct.[6] Mexico’s COFECE has adopted a proactive advocacy strategy, issuing opinions to lower entry barriers and accelerate generic competition.[7] Colombia goes further by applying direct price controls on high-cost medicines, ensuring affordability through administrative mechanisms.[8] At the European Union level, regulatory harmonization and public campaigns have been key to building systemic trust in generics.[9] In contrast, Costa Rica lacks both systematic price regulation and robust competition advocacy in pharmaceuticals, resulting in a more fragmented and reactive framework that offers fewer policy levers to influence prices or promote generic uptake.
The study evaluated competitive conditions across the entire pharmaceutical value chain — spanning production (laboratories), wholesale distribution (droguerías), and retail (pharmacies). At the production level, price margins were largely driven by the dominance of branded medicines and the limited presence of unbranded generics, where slow market entry and non-recognition of foreign regulatory approvals limited the impact of competition. These trends were compounded by lengthy and complex health registration procedures, which are governed by the General Health Law and its associated regulations. These processes disproportionately burden unbranded generic and lower-cost products, delaying their market entry. Additionally, consumer skepticism toward unbranded generics further weakened competitive pressure, allowing higher-priced products to retain market share with limited challenge.
Consumer distrust of unbranded generic medicines in Costa Rica’s private pharmaceutical market weakens price competition and reinforces demand for higher-priced branded drugs. Entry by unbranded generics has been identified as a key driver of price reductions in advanced economies,[10] although it is common for developing economies to be unable to replicate this dynamic.[11] Behavioral factors such as brand loyalty, prescription inertia, and perceived quality gaps drive this trend. International evidence further supports these dynamics: studies by the OECD (2018) and Frank & Salkever (1997) show that patients often equate lower prices with lower efficacy, and that physicians’ brand-based prescribing habits perpetuate these biases.[12] COPROCOM found similar patterns in Costa Rica, with limited pharmacist substitution and poor public awareness hindering the uptake of generic alternatives. Addressing these barriers requires behavioral tools — like INN prescribing mandates, pharmacist empowerment, and public education — to build trust and shift consumer preferences toward generics.
In wholesale distribution no competition concerns were found due to the presence of rivalry among firms, although high concentration exists. Additionally, vertical contracts and discount structures were examined, though no evidence of anticompetitive foreclosure was identified. At the retail level, competition appeared geographically localized, with significant entry and exit dynamism.
The study conveyed that it was those structural and regulatory barriers — rather than excessive concentration — that drive high medicine prices. The central message emphasized the need to strengthen competition through institutional and regulatory reform, rather than punitive measures. Key recommendations included:
- Streamlining the sanitary registration process to enable the entry of new competitors by establishing fast-track mechanisms for drugs already approved in jurisdictions with stringent regulatory standards;
- Fostering trust and uptake of unbranded generics including active ingredient prescriptions, pharmacist empowerment, and educational campaigns targeting consumers and prescribers;
- Regulatory harmonization with regional partners to ease entry and reduce redundant requirements;
- Strengthening CCSS’s purchasing role while treating private pharmacies as a supplementary channel; and
- Monitoring vertical commercial practices without imposing unnecessary restrictions, focusing instead on transparency.
These reforms were designed to reduce prices and increase availability of safe, effective medicines without distorting market dynamics or discouraging innovation.
The study also called for enhanced price transparency and consumer empowerment in the retail segment. Importantly, while vertical commercial practices were scrutinized, no blanket prohibition was recommended; rather, the report advocated for greater transparency and oversight. Overall, the recommendations sought to make medicines more affordable and accessible without compromising quality or innovation.
COPROCOM’s strategy to address the issue was grounded in a rigorous evidence-building process under Law No. 9736 with in-depth interviews involving public authorities, private firms, professional associations, and the academic sector. A comprehensive mapping of the pharmaceutical supply chain was conducted, emphasizing the market dynamics and potential regulatory distortions at each level to identify competitive bottlenecks. Standardized data templates ensured data uniformity, focusing on top-selling products, suppliers, and demand patterns. The Agency analyzed price-setting practices, regulatory timelines, and commercial arrangements, including vertical contracts and discount schemes.
This evidence-based process was paired with a consultative approach involving the Ministry of Health, the CCSS, drug manufacturers, distributors, and pharmacy chains, ensuring relevance and buy-in from stakeholders. COPROCOM also applied a comparative policy lens, referencing international best practices and regulatory frameworks from peer countries. The strategy emphasized transparency, technical rigor, relevance, and institutional dialogue, ensuring that findings were actionable and well-calibrated to Costa Rica’s institutional context.
COPROCOM coordinated with the Ministry of Health to understand regulatory delays and compliance burdens, while working closely with the CCSS to assess public procurement and market segmentation.
Input from the CCSS was critical in examining procurement dynamics and public sector demand. Private sector participants — including multinational pharmaceutical firms, local manufacturers, droguerías, and retail pharmacy chains — provided detailed input through formal information requests and interviews. Perspectives from medical associations and academic institutions were also integrated to better understand clinical and consumer behavior regarding generics.
This collaborative framework allowed COPROCOM to validate findings across sectors, ensuring the study reflected real-world practices. The inclusive process also strengthened institutional trust, improved the quality of recommendations, and supported future implementation through shared ownership of the study’s outcomes.
The study significantly influenced national policy debates on medicine pricing. Most notably, COPROCOM used its findings to challenge Executive Decree No. 44863-MEIC, which imposed maximum gross profit margins for all registered medicines.
COPROCOM warned that such measures risked distorting market incentives, leading to shortages, discouraging entry, and fostering tacit collusion. The agency had previously advised against such measures, emphasizing that they did not meet legal requirements for procedure, motivation, and exceptionality, either. The Commission emphasized that the decree lacked proper procedural justification and ignored the nuanced realities of the pharmaceutical supply chain.
While the decree was enacted despite this opposition, COPROCOM’s advocacy brought unprecedented public attention to the economic and legal risks of blanket price controls. The commission’s subsequent legal actions underscored the risks of such regulations, including potential collusion among competitors and reduced market viability for small enterprises. This advocacy effort reinforced COPROCOM’s role as a technical advisor and watchdog, promoting evidence-based policy over politically expedient but economically damaging regulation.
Building on the momentum generated by this advocacy, COPROCOM grounded its approach in internationally recognized best practices and prior domestic experience to ensure the study’s credibility and policy relevance given Costa Rica’s persistent challenge of high medicine prices — a concern that had spurred various attempts at public policy solutions, with limited success. Past efforts often lacked rigorous empirical grounding and overlooked critical institutional actors, most notably the CCSS, the country’s largest medicine purchaser. This study corrected those gaps by applying a competition-based lens, rigorously testing and discarding unsupported theories, and identifying real structural and regulatory barriers to market efficiency.
The initiative was also shaped by the best international practices in market investigations and pro-competitive regulation. As a member of the OECD, Costa Rica has committed to strengthening pro-competitive regulation in markets with high social relevance. The study followed guidance from the CORPOCOM’s 2023 Market Studies Guide[13] and the OECD’s 2018 Market Studies Guide[14] and drew methodological insight from experiences in the UK’s CMA and Mexico’s COFECE. The study’s methodology aligns with the Guide, emphasizing stakeholder engagement and empirical validation. Domestically, it built on COPROCOM’s prior market studies in sectors such as sugar and rice, marking a shift toward more systemic, reform-oriented competition policy.
The pharmaceutical study has since served as a reference point in local policy discussions and academic analysis, reinforcing the value of competition-based diagnostics in complex regulated markets. The study’s recommendations, if implemented, are expected to generate significant socioeconomic benefits, particularly in terms of consumer savings and increased access to essential medicines.
By streamlining the sanitary registration process, particularly for unbranded generics already approved in high-standard jurisdictions, the study promotes quicker market entry of lower-cost alternatives, putting downward pressure on prices. International evidence suggests that the introduction of generics can reduce prices by up to 60 percent, delivering meaningful savings for households and public institutions. Thus, enhancing public trust in generics could shift demand away from higher-priced branded products by directly lowering out-of-pocket spending for households — especially among vulnerable populations.
Reducing regulatory duplication and aligning Costa Rican standards with regional frameworks would lower compliance costs and attract new market entrants, fostering innovation and diversity in pharmaceutical offerings. Over time, this improved market dynamism could increase investment, diversify pharmaceutical offerings, and support the financial sustainability of the public health system. The study thus sets the stage for both short-term savings and long-term system resilience.
Furthermore, the initiative highlighted the critical role of rigorous market studies in identifying the root causes of competition failures to ground competition policy in empirical evidence and sector-specific realities. By rigorously analyzing data across the market, it challenged the prevailing assumption that high medicine prices stem from excessive concentration at multiple levels of the supply chain, revealing instead how regulatory barriers, entry delays, and consumer biases undermine price competition.
Similarly, engaging diverse stakeholders early in the process proved essential to uncovering operational realities and building trust. Moreover, the study showed that well-intentioned regulations — like price caps — can generate unintended consequences when not grounded in detailed market analysis. This affirmed the role of competition authorities not just as enforcers, but as advisors on sound economic policy. Finally, the initiative demonstrated the strategic advantage of market studies as tools for proactive advocacy, offering a fact-based platform to influence public debate, inform policy design, and enhance institutional credibility.
Click here for a PDF version of the article
[1] Professor at CIDE; Senior Fellow, at GW Competition & Innovation Lab, Head of GAMES Economics (Head, Mexico City).
[2] Professor at Tec of Monterrey, Affiliated Expert at GAMES Economics.
[3] Associate at GAMES Economics.
[4] Principal at GAMES Economics.
[5] COPROCOM (2025) Estudio del Sector Farmacéutico en Costa Rica https://drive.google.com/file/d/14Ikq0s7-yogJRpFjM–xEYzDzJkOkWCi/view?usp=sharing.
[6] CMA (2016) Competition and Markets Authority, decision of 7 December 2016. https://assets.publishing.service.gov.uk/media/594240cfe5274a5e4e00024e/phenytoin-full-non-confidential-decision.pdf.
[7] COFECE (2017). Estudio en materia de libre concurrencia y competencia sobre los mercados de medicamentos con patentes vencidas en México. https://www.cofece.mx/wp-content/uploads/2017/11/estudio-de-medicamentos_vf-baja-1.pdf.
[8] MinSalud (2016). Resolución 256 de 2016. Colombia Ministerio de Salud y Protección Social.
[9] European Commission (2020). Impact of Biosimilar Competition in Europe. https://health.ec.europa.eu/system/files/2021-01/biosimilar_competition_en_0.pdf.
[10] Danzón, P. 2014. “Competition and Antitrust Issues in the Pharmaceutical Industry,” The
Wharton School University of Pennsylvania. https://faculty.wharton.upenn.edu/wp-
content/uploads/2017/06/Competition-and-Antitrust-Issues-in-the-Pharmaceutical-
IndustryFinal7.2.14.pdf.
[11] Danzón, P. and Furukawa, M.F. 2011. “Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets,” https://doi.org/10.3386/w17226.
[12] Frank, R. G., & Salkever, D. S. (1997). “Generic entry and the pricing of pharmaceuticals.” Journal of Economics & Management Strategy, 6(1), 75–90. DOI: 10.1111/j.1430-9134.1997.00075.x.
[13] COPROCOM (2023) Guía de Estudios de Mercados, https://pgrweb.go.cr/scij/Busqueda/Normativa/Normas/nrm_texto_completo.aspx?param1=NRTC&nValor1=1&nValor2=100677&nValor3=138289&strTipM=TC.
[14] OECD (2018) Market Studies Guide for Competition Authorities
https://www.oecd.org/en/publications/market-studies-guide-for-competition-authorities_7381b582-en.html.
