Bargaining and International Reference Pricing in the Pharmaceutical Industry

Pierre Dubois, Ashvin Gandhi and Shoshana Vasserman

No 17293, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The United States spends twice as much per person on pharmaceuticals as European countries, in large part because prices are much higher in the US. This fact has led policymakers to consider legislation for price controls. This paper assesses the effects of a US international reference pricing policy that would cap prices in US markets by those offered in reference countries. We estimate a structural model of demand and supply for pharmaceuticals in the US and reference countries like Canada where prices are set through a negotiation process between pharmaceutical companies and the government. We then simulate the counterfactual equilibrium under such international reference pricing rules, allowing firms to internalize the cross-country externalities introduced by these policies. We find that in general, these policies would result in much smaller price decreases in the US than price increases in reference countries. The magnitude of these effects depends on the number, size and market structure of references countries. We compare these policies with a direct bargaining on prices in the US.

Keywords: Pharmaceuticals; International reference pricing; Bargaining; Empirical industrial organization (search for similar items in EconPapers)
JEL-codes: C51 I18 L22 (search for similar items in EconPapers)
Date: 2022-05
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Related works:
Working Paper: Bargaining and International Reference Pricing in the Pharmaceutical Industry (2022)
Working Paper: Bargaining and International Reference Pricing in the Pharmaceutical Industry (2022)
Working Paper: Bargaining and International Reference Pricing in the Pharmaceutical Industry (2022)
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