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Non-Tariff Barriers and Bargaining in Generic Pharmaceuticals

Sharat Ganapati and Rebecca McKibbin ()
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Rebecca McKibbin: School of Economics, University of Sydney,

No gueconwpa~18-18-23, Working Papers from Georgetown University, Department of Economics

Abstract: Pharmaceutical prices are widely dispersed across countries with comparable quality standards. We study two elements of this dispersion; non-tariff barriers and buyer bargaining power. Under monopoly, generic drug prices are 3-4 times higher in the United States. With 6 or more competitors, generic drug prices are similar across countries. Motivated by this, we use a bargaining model to examine two policy solutions to reduce drug prices. First, we remove non-tariff barriers to increase the number of competitors through a reciprocal approval arrangement and market entry. Second, we explore the US government's unexploited purchasing power to negotiate drug prices. Regarding Medicaid, the first measure can reduce total expenditures by 8% and the second by 18%. There is very little additional savings from doing both procedures in tandem.

Keywords: Law of One Price; Competition; Bargaining; Pharmaceuticals; Non-Tariff Barriers; Healthcare Economics; International Trade (search for similar items in EconPapers)
JEL-codes: I11 F14 L44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-hea and nep-int
Date: 2019-01-10
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