Coordinating on Lower Prices: Pharmaceutical Pricing Under Political Pressure

Sara Fisher Ellison () and Catherine Wolfram ()
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Sara Fisher Ellison: Department of Economics, MIT
Catherine Wolfram: Haas School of Business, University of California Berkeley

No 48, Economics Working Papers from Institute for Advanced Study, School of Social Science

Abstract: This paper investigates possible effects of political activity on pharmaceutical prices, focusing on the health care reform period. We characterize firms based on their vulnerability to future price regulation and find that the more vulnerable firms were more likely to take various actions to forestall regulation, most notably coordinating on a specific percentage price increase during 1993. Since moderating price increases could have been an effective tool to avert regulation, the coordination we observe is the obvious response of the industry to a classic collective action problem.

Pages: 36 pages
Date: 2004-07
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