We study actual and potential competition and other factors that determine price paths of brand‐name drugs in the Swedish pharmaceuticals market. The results indicate that the price of the incumbent product is lowered by potential competition, entry of (additional) generics, and the introduction of a so‐called reference‐price system. We also identify a ‘ratchet’ effect, through which price regulation makes entry‐deterring limit‐pricing credible.

Substitution possibilities between brand name pharmaceuticals are analysed. The analysis is based on data from three different markets; the prescription drug market for beta-blocking agents, the 'over the counter' market for purgatives and the hospital market for two pharmaceutical treatments for gastric ulcers. The results indicate that there exist some substitution possibilities among the brand name drugs included in the study.

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