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The effects of rebate contracts on the health care system

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  • Graf, Julia

Abstract

Group Purchasing Organizations (GPOs) increasingly gain in importance with respect to the supply of pharmaceutical products and frequently use multiple or exclusive rebate contracts to exercise market power. Based on a Hotelling model of horizontal and vertical product differentiation, we examine the controversy whether there exists a superior rebate scheme as far as consumer surplus, firms profits and total welfare are concerned. Accounting for horizontal and vertical differentiation, we find that firms clearly prefer multiple over exclusive rebate contracts. Contrary, there exists no rebate form that per se lowers total costs for the members of the GPOs or maximizes total welfare.

Suggested Citation

  • Graf, Julia, 2012. "The effects of rebate contracts on the health care system," DICE Discussion Papers 45, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:45
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    References listed on IDEAS

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    1. Sara Fisher Ellison & Christopher M. Snyder, 2010. "Countervailing Power In Wholesale Pharmaceuticals," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 32-53, March.
    2. Brekke, Kurt R. & Konigbauer, Ingrid & Straume, Odd Rune, 2007. "Reference pricing of pharmaceuticals," Journal of Health Economics, Elsevier, vol. 26(3), pages 613-642, May.
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    10. Sreya Kolay & Greg Shaffer & Janusz A. Ordover, 2004. "All‐Units Discounts in Retail Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(3), pages 429-459, September.
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    Cited by:

    1. Youqiong Ai & Thomas Y. Lu, 2019. "On the Rationality of Bundled Rebate Program in Modem Chip Industry: an Analysis on Qualcomm’s Case," Journal of Industry, Competition and Trade, Springer, vol. 19(4), pages 641-660, December.
    2. Behzad Hezarkhani & Greys Sošić, 2019. "Who’s Afraid of Strategic Behavior? Mechanisms for Group Purchasing," Production and Operations Management, Production and Operations Management Society, vol. 28(4), pages 933-954, April.
    3. Laurent M. Willems & Hajo M. Hamer & Susanne Knake & Felix Rosenow & Jens-Peter Reese & Adam Strzelczyk, 2019. "General Trends in Prices and Prescription Patterns of Anticonvulsants in Germany between 2000 and 2017: Analysis of National and Cohort-Based Data," Applied Health Economics and Health Policy, Springer, vol. 17(5), pages 707-722, October.
    4. Carl Rudolf Blankart & Tom Stargardt, 2017. "Preferred supplier contracts in post-patent prescription drug markets," Health Care Management Science, Springer, vol. 20(3), pages 419-432, September.
    5. Gianluca Antonecchia & Ajay Bhaskarabhatla & Enrico Pennings, 2024. "Bargaining Power and Quantity Discounts to Retailers: Evidence from India’s Pharmaceutical Industry," Tinbergen Institute Discussion Papers 24-048/VII, Tinbergen Institute.
    6. Patricia M. Danzon, 2018. "Differential Pricing of Pharmaceuticals: Theory, Evidence and Emerging Issues," PharmacoEconomics, Springer, vol. 36(12), pages 1395-1405, December.

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    More about this item

    Keywords

    GPOs; Rebate Contracts; Vertical Differentiation;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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