Passthrough of Retail Price Regulation in the Market for Pharmaceuticals

Jaakko Markkanen

No 123, ETLA Working Papers from The Research Institute of the Finnish Economy

Abstract: Abstract I study the transmission of pharmacy mark-ups to retail prices and the policy between retail markups and Value Added Tax (VAT) rates in Finland. My reduced form evidence demonstrates that pharmaceutical manufacturers respond to a decrease in the regulated pharmacy mark-ups by increasing their wholesale prices. I estimate a structural model of pharmaceutical supply and demand using data from the Finnish statin market. I show that only half of the decrease in the pharmacy-markup was transferred to retail prices. I also demonstrate that the government can address the increase in manufacturer revenues by increasing the VAT rate for pharmaceuticals.

Keywords: Pharmaceuticals; Passthrough; Price regulation (search for similar items in EconPapers)
JEL-codes: C23 H51 I11 L51 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2024-12-31
New Economics Papers: this item is included in nep-com, nep-ind and nep-reg
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