Reference Pricing as a Deterrent to Entry: Evidence from the European Pharmaceutical Market

Luca Maini and Fabio Pammolli

American Economic Journal: Microeconomics, 2023, vol. 15, issue 2, 345-83

Abstract: External reference pricing (ERP), the practice of benchmarking domestic drug prices to foreign prices, generates an incentive for firms to withhold products from low-income countries. Using a novel moment inequality approach, we estimate a structural model to measure how ERP policies affect access to innovative drugs across Europe. We find that ERP increases entry delays in eight low-income European countries by up to one year per drug. The European Union could remove these delays without replacing ERP by compensating firms through lump-sum transfers at the cost of around €18 million per drug.

JEL-codes: L13 L51 L65 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmic:v:15:y:2023:i:2:p:345-83

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DOI: 10.1257/mic.20210053

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