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Reference pricing systems on the pharmaceutical market

Author

Listed:
  • Unsorg Maximiliane

    (9188 University of Tübingen, School of Business and Economics, Nauklerstraße 47, D-72074 Tübingen, Germany)

Abstract
Constantly rising expenditures for pharmaceuticals require government intervention in firms’ pricing decisions. To this end, reference pricing systems are a frequently employed regulatory mechanism. This paper considers a duopoly market with vertically differentiated firms highlighting the effects of a reference pricing system on prices, consumer and producer surplus, expenditures and welfare. Reference pricing decreases equilibrium prices and induces a more competitive environment. It promotes generic usage leading to increased market coverage. Especially generic consumers benefit from a reference pricing regulation. The losses in producer surplus are mainly born by the brand-name firm. Introducing a reference pricing system unambiguously increases welfare.

Suggested Citation

  • Unsorg Maximiliane, 2022. "Reference pricing systems on the pharmaceutical market," German Economic Review, De Gruyter, vol. 23(3), pages 403-421, August.
    • Handle: RePEc:bpj:germec:v:23:y:2022:i:3:p:403-421:n:3
    DOI: 10.1515/ger-2020-0105
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    References listed on IDEAS

    as
    1. Anna Merino, 2000. "The impact of the reference price system on the pharmaceutical market: A theoretical approach," Working Papers, Research Center on Health and Economics 524, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2003.
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    10. Brekke, Kurt R. & Canta, Chiara & Straume, Odd Rune, 2016. "Reference pricing with endogenous generic entry," Journal of Health Economics, Elsevier, vol. 50(C), pages 312-329.
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    More about this item

    Keywords

    reference pricing; pharmaceutical market; copayment; price cap; price competition; expenditures; consumer surplus;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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