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Drivers of public procurement prices: Evidence from pharmaceutical markets

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  • Allende, Claudia
  • Atal, Juan Pablo
  • Carril, Rodrigo
  • Cuesta, José Ignacio
  • González-Lira, Andrés

Abstract

This paper examines the determinants of public procurement prices using comprehensive data on pharmaceutical purchases by the public sector in Chile. We first document sizable price differences between buyers for the same product and quantity purchased: the difference between the average prices paid by buyers at the 90th and 10th percentiles of the distribution is 16 percent. Our main results are related to the importance of market structure in explaining the dispersion in procurement prices. We find that market structure explains three times more dispersion than buyer effects. Moreover, we leverage exogenous variation in market structure due to patent expirations to estimate that the entry of an additional seller decreases average procurement prices by 11.7 percent, which is 72 percent of the price differences implied by the gap between the 90th and 10th percentiles of estimated buyer effects. These results suggest that supply-side factors are relevant determinants of public procurement prices and that their quantitative importance may exceed that of demand-side factors previously emphasized in the literature.

Suggested Citation

  • Allende, Claudia & Atal, Juan Pablo & Carril, Rodrigo & Cuesta, José Ignacio & González-Lira, Andrés, 2024. "Drivers of public procurement prices: Evidence from pharmaceutical markets," International Journal of Industrial Organization, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:indorg:v:96:y:2024:i:c:s0167718724000419
    DOI: 10.1016/j.ijindorg.2024.103086
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    More about this item

    Keywords

    Procurement; Competition; Drugs;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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