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Passthrough of Retail Price Regulation in the Market for Pharmaceuticals

Author

Listed:
  • Markkanen, Jaakko

Abstract

I study the transmission of pharmacy mark-ups to retail prices and the policy between retail markups and Value Added Tax (VAT) rates in Finland. My reduced form evidence demonstrates that pharmaceutical manufacturers respond to a decrease in the regulated pharmacy mark-ups by increasing their wholesale prices. I estimate a structural model of pharmaceutical supply and demand using data from the Finnish statin market. I show that only half of the decrease in the pharmacy-markup was transferred to retail prices. I also demonstrate that the government can address the increase in manufacturer revenues by increasing the VAT rate for pharmaceuticals.

Suggested Citation

  • Markkanen, Jaakko, 2024. "Passthrough of Retail Price Regulation in the Market for Pharmaceuticals," ETLA Working Papers 123, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:wpaper:123
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    More about this item

    Keywords

    Pharmaceuticals; Passthrough; Price regulation;
    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
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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