Drug Prices, Rents, and Votes in the German Health Care Market: An Application of the Peltzman Model

Anne Maria Busch ()
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Anne Maria Busch: Leuphana University Lueneburg, Germany

No 339, Working Paper Series in Economics from University of Lüneburg, Institute of Economics

Abstract: Using the health care reform of 2004 as an experience, the reaction of consumers (insured persons) and producers (pharmaceutical industry) based on electoral behavior and relating to drug prices and copayments imposed on drugs is analyzed. The changes in prices and medications after this reform make it to a natural choice. For the analysis, the interest group model by Peltzman (1976) is applied to the German health care market. The vote-maximizing government has to find the optimal combination of rent and price of regulation. As a result, the vote-maximizing outcome is determined by a price level which reflects the interests of consumers as well as the pharmaceutical industry. The analysis of the reaction of consumers related to the co-payment rules of 2004 leads to the hypothesis that the regulator, and finally the pharmaceutical industry, sets drug prices in a way that they are ranging from 5 to 50 Euro. Prices between 50 and 100 Euro are possible as well, reflecting a balance of power facing the pharmaceutical industry. Producers who had accepted the 1989 reference price had an incentive to increase their price while lowering their sales volume.

Keywords: German health care market; interest groups; political pressure; lobbyism (search for similar items in EconPapers)
JEL-codes: D72 D78 I39 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2015-05
New Economics Papers: this item is included in nep-cdm, nep-com, nep-eur, nep-hea and nep-pol
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