Competitive Bidding in Drug Procurement: Evidence from China

Shengmao Cao, Lisa Xuejie Yi and Chuan Yu

American Economic Journal: Economic Policy, 2024, vol. 16, issue 3, 481-513

Abstract: We study the equilibrium effects of introducing competitive bidding in drug procurement. In 2019, China introduced a competitive bidding program where drug companies bid for a prespecified procurement quantity in nine provinces. Using a difference-in-differences design, we show the program reduced average drug prices by 47.4 percent. Generic drugs won most bids and cut prices by 75.0 percent. We develop an equilibrium model to quantify the trade-off between lower prices and potential choice distortions. Competitive bidding increases consumer welfare if policymakers believe consumers should value branded and bioequivalent generic drugs equally. The program also reduced government expenditure on insurance by 19.8 percent.

JEL-codes: D44 G22 I18 L13 L65 P25 P31 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/pol.20220505 (application/pdf)
https://doi.org/10.3886/E193165V1 (text/html)
https://www.aeaweb.org/doi/10.1257/pol.20220505.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/pol.20220505.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejpol:v:16:y:2024:i:3:p:481-513

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/pol.20220505

Access Statistics for this article

American Economic Journal: Economic Policy is currently edited by Matthew Shapiro

More articles in American Economic Journal: Economic Policy from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().