External Price Benchmarking vs. Price Negotiation for Pharmaceuticals

Philipp Ackermann

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: External price benchmarking imposes a price cap for pharmaceuticals based on prices of identical products in other countries. Suppose that a regulatory agency can either directly negotiate drug prices with pharmaceutical manufacturers or implement a benchmarking regime based on foreign prices. Using a model where two countries differ only in their market size, we show that a country prefers benchmarking if its agency has considerably less bargaining power compared to the agency in the other country. Assuming that bargaining power is positively correlated to country size, we find that only small countries might have an incentive to engage in external price benchmarking. This incentive shrinks if population size grows.

Keywords: Pharmaceuticals; price negotiation; administered prices; external reference pricing (search for similar items in EconPapers)
JEL-codes: I18 L65 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-bec
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Citations: View citations in EconPapers (1)

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