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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. --

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Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 45.

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Date of creation: 2012
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Handle: RePEc:zbw:dicedp:45

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Keywords: GPOs; Rebate Contracts; Vertical Differentiation;

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  1. Sara Fisher Ellison & Christopher M. Snyder, 2010. "COUNTERVAILING POWER IN WHOLESALE PHARMACEUTICALS -super-* ," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 58(1), pages 32-53, 03.
  2. Kurt R. Brekke & Ingrid Königbauer & Odd Rune Straume, 2006. "Reference Pricing of Pharmaceuticals," CESifo Working Paper Series 1825, CESifo Group Munich.
  3. Sreya Kolay & Greg Shaffer & Janusz A. Ordover, 2004. "All-Units Discounts in Retail Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 13(3), pages 429-459, 09.
  4. Tyagi, Rajeev K, 2001. "Why Do Suppliers Charge Larger Buyers Lower Prices?," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 49(1), pages 45-61, March.
  5. Snyder, Christopher M., 1998. "Why do larger buyers pay lower prices? Intense supplier competition," Economics Letters, Elsevier, Elsevier, vol. 58(2), pages 205-209, February.
  6. Miraldo, Marisa, 2009. "Reference pricing and firms' pricing strategies," Journal of Health Economics, Elsevier, Elsevier, vol. 28(1), pages 176-197, January.
  7. Marvel, Howard P. & Yang, Huanxing, 2008. "Group purchasing, nonlinear tariffs, and oligopoly," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(5), pages 1090-1105, September.
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