The Effects of Competition on Prescription Payments in Retail Pharmacy Markets

Jihui Chen

Southern Economic Journal, 2019, vol. 85, issue 3, 865-898

Abstract: Using pharmacy claims from New Hampshire between 2009 and 2011, I study the extent to which pharmacy competition affects prescription payments. I measure pharmacy competition by the distance to nearby rivals, as well as a fixed‐travel‐time Herfindahl–Hirschman index (HHI) (Dunn and Shapiro ). After controlling for various factors, including insurer, pharmacy, drug, and area characteristics, I find higher average drug prices in more concentrated seller (pharmacy) markets, but lower prices in more concentrated buyer (insurer) markets. Ceteris paribus, pharmacies with high market power (concentration in the 90th percentile) charge 2.78% more than those with low market power (concentration in the 10th percentile). The distance effect is more pronounced if a nearby pharmacy belongs to the same national chain. In addition, I show heterogeneous distance effects across different drug types and areas. My analysis contributes to the empirical literature on competition measures by adding new evidence from the retail pharmaceutical market.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:85:y:2019:i:3:p:865-898

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