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Non-Tariff Barriers and Bargaining in Generic Pharmaceuticals

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Abstract

Pharmaceutical prices are widely dispersed across countries with comparable quality standards. We study two elements of this dispersion; non-tariff barriers and buyer bargaining power. Under monopoly, generic drug prices are 3-4 times higher in the United States. With 6 or more competitors, generic drug prices are similar across countries. Motivated by this, we use a bargaining model to examine two policy solutions to reduce drug prices. First, we remove non-tariff barriers to increase the number of competitors through a reciprocal approval arrangement and market entry. Second, we explore the US government's unexploited purchasing power to negotiate drug prices. Regarding Medicaid, the first measure can reduce total expenditures by 8% and the second by 18%. There is very little additional savings from doing both procedures in tandem.

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  • Sharat Ganapati & Rebecca McKibbin, 2019. "Non-Tariff Barriers and Bargaining in Generic Pharmaceuticals," Working Papers gueconwpa~18-18-23, Georgetown University, Department of Economics.
    • Handle: RePEc:geo:guwopa:gueconwpa~18-18-23
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    More about this item

    Keywords

    Law of One Price; Competition; Bargaining; Pharmaceuticals; Non-Tariff Barriers; Healthcare Economics; International Trade;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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