Drivers of Public Procurement Prices: Evidence from Pharmaceutical Markets

José Ignacio Cuesta, Juan Pablo Atal, Claudia Allende, Andres Gonzalez-Lira and Rodrigo Carril

No 1413, Working Papers from Barcelona School of Economics

Abstract: This paper examines the determinants of public procurement prices using comprehensive data on pharmaceutical purchases by the public sector in Chile. We first document sizable price differences between buyers for the same product and quantity purchased: the difference between the average prices paid by buyers at the 90th and 10th percentiles of the distribution is 16 percent. Our main results are related to the importance of market structure in explaining the dispersion in procurement prices. We find that market structure explains three times more dispersion than buyer effects. Moreover, we leverage exogenous variation in market structure due to patent expirations to estimate that the entry of an additional seller decreases average procurement prices by 11.7 percent, which is 72 percent of the price differences implied by the gap between the 90th and 10th percentiles of estimated buyer effects. These results suggest that supply-side factors are relevant determinants of public procurement prices and that their quantitative importance may exceed that of demand-side factors previously emphasized in the literature.

Keywords: competition; Procurement; Bureaucracy; pharmaceutical drugs (search for similar items in EconPapers)
JEL-codes: D44 D73 H57 (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-com, nep-hea, nep-ind and nep-reg
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Working Paper: Drivers of public procurement prices: Evidence from pharmaceutical markets (2023)
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