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External Price Benchmarking vs. Price Negotiation for Pharmaceuticals

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  • Philipp Ackermann

Abstract

External price benchmarking imposes a price cap for pharmaceuticals based on prices of identical products in other countries. Suppose that a regulatory agency can either directly negotiate drug prices with pharmaceutical manufacturers or implement a benchmarking regime based on foreign prices. Using a model where two countries differ only in their market size, we show that a country prefers benchmarking if its agency has considerably less bargaining power compared to the agency in the other country. Assuming that bargaining power is positively correlated to country size, we find that only small countries might have an incentive to engage in external price benchmarking. This incentive shrinks if population size grows.

Suggested Citation

  • Philipp Ackermann, 2010. "External Price Benchmarking vs. Price Negotiation for Pharmaceuticals," Diskussionsschriften dp1004, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp1004
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    File URL: https://repec.vwiit.ch/dp/dp1004.pdf
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    References listed on IDEAS

    as
    1. Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2011. "External referencing and pharmaceutical price negotiation," Health Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 737-756, June.
    2. Lopez-Casasnovas, Guillem & Puig-Junoy, Jaume, 2000. "Review of the literature on reference pricing," Health Policy, Elsevier, vol. 54(2), pages 87-123, November.
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    Cited by:

    1. Laura Birg, 2024. "The design of external reference pricing schemes and the choice of reference countries and pricing rules," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(4), pages 1182-1202, November.

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    More about this item

    Keywords

    Pharmaceuticals; price negotiation; administered prices; external reference pricing;
    All these keywords.

    JEL classification:

    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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