Pharmaceutical Supply Chain in China: Pricing and Production Decisions with Price-Sensitive and Uncertain Demand

Suhan Wu, Min Luo, Jingxia Zhang, Daoheng Zhang and Lianmin Zhang
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Suhan Wu: School of Economics and Management, Nanjing Polytechnic Institute, No. 188 Xinle Road, Neo Jiangbei District, Nanjing 210048, China
Min Luo: School of Management, Shenzhen Institute of Information Technology, No. 2188 Longxiang Avenue, Longgang District, Shenzhen 518172, China
Jingxia Zhang: School of Information Science and Engineering, Jinling College Nanjing University, No. 8 Xuefu Road, Pukou District, Nanjing 210089, China
Daoheng Zhang: School of Engineering and Information Technology, University of New South Wales, Canberra, ACT 2600, Australia
Lianmin Zhang: Shenzhen Research Institute of Big Data, Daoyuan Building, No. 2001 Longxiang Avenue, Longgang District, Shenzhen 518172, China

Sustainability, 2022, vol. 14, issue 13, 1-28

Abstract: In this paper, we apply game theory to study the price competition between drugstores and hospitals in China’s pharmaceutical supply chain. Motivated by drug shortages and price disparity problems, we build a simplified model with one supplier, one hospital, and one drugstore in which the sellers sell one kind of drug and compete on price. The hospital receives a discount from the government when ordering the drug and both sellers face a price-sensitive and uncertain demand. The existence and uniqueness of a Nash equilibrium are proved and closed-form solutions are found for linear demand cases. We characterize the pricing and ordering decisions of the hospital and drugstore. The analysis shows that high ex-factory price, high price sensitivity, and a small discount are three factors contributing to drug shortages. We consider two special kinds of linear demand to obtain insights into the drug price disparity problem.

Keywords: pharmaceutical supply chain; pricing; game theory; price-sensitive and uncertain demand (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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