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Price Discrimination in the Italian Medical Device Industry: An Empirical Analysis

Author

Listed:
  • Alberto Cavaliere

    (Department of Economics and Management, University of Pavia)

  • Giovanni Crea

    (Department of Economics and Management, University of Pavia)

  • Angelo Cozzi

    (Department of Economics and Management, University of Pavia)

Abstract

In this paper we carry out an empirical analysis to show that the significant price dispersion in the Italian market for medical devices may also be due to price discrimination strategies. We find that ASL (Aziende Sanitarie Locali) incur higher costs than AO (Aziende Ospedaliere) that purchase larger quantities. Centralized purchasing agencies pay lower prices than single purchasers. Therefore second-degree price discrimination seems to be one cause of price differences. Product age has a negative effect on prices due to the impact of innovation on suppliers’ costs. Concerning geographical price discrimination, public procurers located in the south pay significantly higher prices than those located in Northern or Central Italy. However we show that this result may be due to the higher probability that southern public procurers purchase from independent retailers rather than from producers of medical devices, implying a potential double marginalization effect due to the market power of retailers at a local level.

Suggested Citation

  • Alberto Cavaliere & Giovanni Crea & Angelo Cozzi, 2018. "Price Discrimination in the Italian Medical Device Industry: An Empirical Analysis," DEM Working Papers Series 146, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0146
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    References listed on IDEAS

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    1. Egil Kjerstad, 2005. "Auctions vs negotiations: a study of price differentials," Health Economics, John Wiley & Sons, Ltd., vol. 14(12), pages 1239-1251, December.
    2. Mercedes Vellez, 2012. "Determinants of Price Discrimination in the Acquisition of Medical Devices," CEIS Research Paper 235, Tor Vergata University, CEIS, revised 11 May 2012.
    3. Gianluca Baio & Laura Magazzini & Claudia Oglialoro & Fabio Pammolli & Massimo Riccaboni, 2005. "Medical Devices: Competitiveness and Impact on Public Health Expenditure," Working Papers CERM 05-2005, Competitività, Regole, Mercati (CERM).
    4. Mercedes Vellez, 2011. "Auctions versus Negotiations: Evidence from Public Procurement in the Italian Healthcare Sector," CEIS Research Paper 191, Tor Vergata University, CEIS, revised 29 Mar 2011.
    5. Matthew Grennan, 2013. "Price Discrimination and Bargaining: Empirical Evidence from Medical Devices," American Economic Review, American Economic Association, vol. 103(1), pages 145-177, February.
    6. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654, Elsevier.
    7. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    8. Sorenson, Corinna & Kanavos, Panos, 2011. "Medical technology procurement in Europe: A cross-country comparison of current practice and policy," Health Policy, Elsevier, vol. 100(1), pages 43-50, April.
    9. Andrea Bonaccorsi & Thomas Lyon & Fabio Pammolli & Giuseppe Turchetti, 1999. "Auctions vs. Bargaining: An Empirical Analysis of Medical Device Procurement," LEM Papers Series 1999/20, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    10. repec:reg:rpubli:395 is not listed on IDEAS
    11. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
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    Cited by:

    1. Beata GAVUROVA & Martin MIKESKA & Eva HUCULOVA, 2020. "Evaluation Of Selected Determinants Of Public Procurement In The Health Sector," REVISTA ADMINISTRATIE SI MANAGEMENT PUBLIC, Faculty of Administration and Public Management, Academy of Economic Studies, Bucharest, Romania, vol. 2020(34), pages 45-63, June.

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    More about this item

    Keywords

    Price Dispersion; Bayesian Networks; Double Marginalization.;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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