Identifying Industry Margins with Price Constraints: Structural Estimation on Pharmaceuticals

Pierre Dubois and Laura Lasio

American Economic Review, 2018, vol. 108, issue 12, 3685-3724

Abstract: We develop a structural model to investigate the effects of pharmaceutical price regulation on demand and on manufacturers' price-setting behavior in France. We estimate price-cost margins in a regulated market with price constraints and infer whether these constraints are binding, exploiting cost restrictions across drugs, which come from observing the same drugs in potentially price-constrained markets (France) and in markets where prices are unregulated (US and Germany). Our counterfactual simulations suggest that price constraints generated modest savings for anti-ulcer drugs in 2003–2013 (2 percent of total expenses), relative to a free pricing scenario, and shifted consumption from generic to branded drugs.

JEL-codes: C51 D24 I18 L13 L51 L65 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/aer.20140202
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