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Identifying Industry Margins with Price Constraints: Structural Estimation on Pharmaceuticals

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  • Pierre Dubois
  • Laura Lasio

Abstract

We develop a structural model to investigate the effects of pharmaceutical price regulation on demand and on manufacturers' price-setting behavior in France. We estimate price-cost margins in a regulated market with price constraints and infer whether these constraints are binding, exploiting cost restrictions across drugs, which come from observing the same drugs in potentially price-constrained markets (France) and in markets where prices are unregulated (US and Germany). Our counterfactual simulations suggest that price constraints generated modest savings for anti-ulcer drugs in 2003–2013 (2 percent of total expenses), relative to a free pricing scenario, and shifted consumption from generic to branded drugs.

Suggested Citation

  • Pierre Dubois & Laura Lasio, 2018. "Identifying Industry Margins with Price Constraints: Structural Estimation on Pharmaceuticals," American Economic Review, American Economic Association, vol. 108(12), pages 3685-3724, December.
    • Handle: RePEc:aea:aecrev:v:108:y:2018:i:12:p:3685-3724
    Note: DOI: 10.1257/aer.20140202
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    Citations

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    Cited by:

    1. Juan Pablo Atal & José Ignacio Cuesta & Felipe González & Cristóbal Otero, 2024. "The Economics of the Public Option: Evidence from Local Pharmaceutical Markets," American Economic Review, American Economic Association, vol. 114(3), pages 615-644, March.
    2. Philippe Choné & Lionel Wilner, 2022. "Financial Incentives and Competitive Pressure: The Case of the Hospital Industry," Journal of the European Economic Association, European Economic Association, vol. 20(2), pages 626-666.
    3. Pierre Dubois & Morten Sæthre, 2020. "On the Effect of Parallel Trade on Manufacturers' and Retailers' Profits in the Pharmaceutical Sector," Econometrica, Econometric Society, vol. 88(6), pages 2503-2545, November.
    4. Vasudha Wattal, 2022. "Pricing of new pharmaceuticals and price regulation in India," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2022-02, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    5. Atal, Juan Pablo & Cuesta, Jose Ignacio & Sæthre, Morten, 2018. "Quality Regulation and Competition: Evidence from Pharmaceutical Markets," Research Department working papers 1211, CAF Development Bank Of Latinamerica.
    6. Gugler, Klaus & Szücs, Florian, 2023. "Market Power and Regulation in Pharmaceutical Markets," Department of Economics Working Paper Series 343, WU Vienna University of Economics and Business.
    7. Aljoscha Janssen, 2022. "Price dynamics of Swedish pharmaceuticals," Quantitative Marketing and Economics (QME), Springer, vol. 20(4), pages 313-351, December.
    8. Tuncel, Tuba, 2022. "Should We Prevent Off-Label Drug Prescriptions? Empirical Evidence from France," TSE Working Papers 22-1383, Toulouse School of Economics (TSE).
    9. Yin, Nina, 2023. "Pharmaceuticals, incremental innovation and market exclusivity," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    10. Suppliet, Moritz, 2020. "Umbrella branding in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 73(C).
    11. Kortelainen, Mika & Markkanen, Jaakko & Toivanen, Otto & Siikanen, Markku, 2023. "The Effects of Price Regulation on Pharmaceutical Expenditure and Availability," CEPR Discussion Papers 18497, C.E.P.R. Discussion Papers.
    12. Pierre Dubois & Ashvin Gandhi & Shoshana Vasserman, 2022. "Bargaining and International Reference Pricing in the Pharmaceutical Industry," NBER Working Papers 30053, National Bureau of Economic Research, Inc.
    13. Ying Fan & Ge Zhang, 2022. "The welfare effect of a consumer subsidy with price ceilings: the case of Chinese cell phones," RAND Journal of Economics, RAND Corporation, vol. 53(2), pages 429-449, June.
    14. Clark, Robert & Fabiilli, Christopher & Lasio, Laura, 2022. "Collusion in the US generic drug industry," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    15. Dubois, Pierre & Majewska, Gosia, 2022. "Mergers and Advertising in the Pharmaceutical Industry," CEPR Discussion Papers 17658, C.E.P.R. Discussion Papers.
    16. Callejas, Jerónimo & Mohapatra, Debi Prasad, 2021. "Welfare effects of public procurement of medicines: Evidence from Ecuador," International Journal of Industrial Organization, Elsevier, vol. 75(C).
    17. Philippe CHONÉ & Lionel WILNER, 2019. "Competition on Unobserved Attributes: The Case of the Hospital Industry," Working Papers 2019-21, Center for Research in Economics and Statistics.

    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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