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

Pierre Dubois () and Laura Lasio

No 14-471, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We provide a method allowing identification of 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. 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. We use the market for anti-ulcer drugs to identify whether regulation in France truly affects margins and prices and relate regulatory reforms to industry pricing equilibrium. Empirical results show that firms were especially constrained in price setting after the different reforms in 2004. Counterfactual simulations show that total spending significantly increased because of the new price regulation by displacing part of the demand from generics to branded drugs.

Keywords: empirical IO; price constraints; Bertrand competition; regulation; pharmaceuticals; antiulcer drugs (search for similar items in EconPapers)
JEL-codes: I18 L10 (search for similar items in EconPapers)
Date: 2014-02, Revised 2018-03
References: View references in EconPapers View complete reference list from CitEc
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Related works:
Working Paper: Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals (2014) Downloads
Working Paper: Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals (2014) Downloads
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