Bargaining and International Reference Pricing in the Pharmaceutical Industry / Pierre Dubois, Ashvin Gandhi, Shoshana Vasserman.

Format:

Book

Author/Creator:

Dubois, Pierre.

Contributor:

National Bureau of Economic Research.

Gandhi, Ashvin.

Vasserman, Shoshana.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30053.

NBER working paper series no. w30053

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

The United States spends twice as much per person on pharmaceuticals as European countries, in large part because prices are much higher in the US. This fact has led policymakers to consider legislation for price controls. This paper assesses the effects of a US international reference pricing policy that would cap prices in US markets by those offered in reference countries. We estimate a structural model of demand and supply for pharmaceuticals in the US and reference countries like Canada where prices are set through a negotiation process between pharmaceutical companies and the government. We then simulate the counterfactual equilibrium under such international reference pricing rules, allowing firms to internalize the cross-country externalities introduced by these policies. We find that in general, these policies would result in much smaller price decreases in the US than price increases in reference countries. The magnitude of these effects depends on the number, size and market structure of references countries. We compare these policies with a direct bargaining on prices in the US.

Notes:

Print version record

May 2022.