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The effects of rebate contracts on the health care system

Julia Graf

No 45, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: Group Purchasing Organizations (GPOs) increasingly gain in importance with respect to the supply of pharmaceutical products and frequently use multiple or exclusive rebate contracts to exercise market power. Based on a Hotelling model of horizontal and vertical product differentiation, we examine the controversy whether there exists a superior rebate scheme as far as consumer surplus, firms profits and total welfare are concerned. Accounting for horizontal and vertical differentiation, we find that firms clearly prefer multiple over exclusive rebate contracts. Contrary, there exists no rebate form that per se lowers total costs for the members of the GPOs or maximizes total welfare.

Keywords: GPOs; Rebate Contracts; Vertical Differentiation (search for similar items in EconPapers)
JEL-codes: I11 L13 L42 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-com and nep-hea
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Journal Article: The effects of rebate contracts on the health care system (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:45

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