Industrial Organization Studies on Pharmaceutical Markets

Jaakko Markkanen

No 53 in ETLA A from The Research Institute of the Finnish Economy

Abstract: Abstract This thesis comprises three unpublished essays. The first essay analyzes the effectiveness of consumer choice policies in the Nordic pharmaceutical markets. Using quasi-experimental methods and data matched across countries by active ingredients, the results show that pharmaceutical expenditure per dose decreases by 40% under stricter pricing regimes, without adversely affecting pharmaceutical availability or consumption. Regimes that increase consumer incentives are effective, but those that address both consumer and producer incentives are the most successful. The second essay examines the impact of retail markup regulation on wholesale and retail prices in the Finnish pharmaceutical market. Employing both reduced form and structural analyses, I find that a reduction in pharmacy markups leads to increased wholesale prices, with only half of this increase passed on to retail prices. The study also suggests that adjustments in VAT rates could counterbalance the increased manufacturer revenues resulting from lower retail markups. The third essay evaluates the impact of relaxing entry regulations in the Finnish pharmacy market. Our simulation results show that the existing entry restrictions primarily benefit incumbent pharmacists at the expense of consumers. Furthermore, although entry regulations are motivated by the goal of ensuring equal access to local pharmacy services, our results suggest that almost all consumers benefit from deregulation. The number of pharmacies increases, particularly in urban areas, whereas rural areas and regions with older populations benefit less. However, increases in fixed costs and reduced labor productivity outweigh consumer surplus gains, indicating excessive entry from a social welfare perspective.

Keywords: Industrial organization; Pharmaceutical markets; Regulation (search for similar items in EconPapers)
Date: Written 2025-01-24
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