EconPapers    
Economics at your fingertips  
 

Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals

Pierre Dubois () and Laura Lasio

No 9881, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide a method allowing to identify margins in an oligopoly price competition game when prices may not be freely chosen in some markets, for example due to regulation. We use our identification strategy to study the effects of regulatory constraints in the pharmaceutical industry, which is heavily regulated in some countries, and particularly in France. We use data from the US, Germany and France to identify country-specific demand models and then recover price cost margins under the regulated price setting constraints on the French market. To do so, we estimate a structural model on the market for anti-ulcer drugs that allows us to explore the drivers of demand, to identify whether regulation in France truly affects margins and prices and to relate regulatory reforms to industry pricing equilibrium. We provide the first structural estimation of price-cost margins on a regulated market with price constraints and show how to identify unknown possibly binding constraints thanks to three different markets (US, Germany and France) with varying regulatory constraints. Empirical results show that margins have increased over time in France but that firms were especially constrained in price setting after the different reforms in price setting that occurred in 2004. Counterfactual simulations show that overall total spending has significantly increased over the 2004-2007 period because of new regulation of price setting that reduced branded drugs prices but increased sales quantities by displacing part of the demand from generics to branded drugs.

Keywords: antiulcer drugs; Bertrand competition; empirical IO; pharmaceuticals; price constraints; regulation (search for similar items in EconPapers)
JEL-codes: C18 I18 L10 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9881 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals (2018) Downloads
Working Paper: Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals (2014) Downloads
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:cpr:ceprdp:9881

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=9881

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2021-12-28
Handle: RePEc:cpr:ceprdp:9881