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Reference Pricing as a Deterrent to Entry: Evidence from the European Pharmaceutical Market

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  • Luca Maini
  • Fabio Pammolli

Abstract

External reference pricing (ERP), the practice of benchmarking domestic drug prices to foreign prices, generates an incentive for firms to withhold products from low-income countries. Using a novel moment inequality approach, we estimate a structural model to measure how ERP policies affect access to innovative drugs across Europe. We find that ERP increases entry delays in eight low-income European countries by up to one year per drug. The European Union could remove these delays without replacing ERP by compensating firms through lump-sum transfers at the cost of around €18 million per drug.

Suggested Citation

  • Luca Maini & Fabio Pammolli, 2023. "Reference Pricing as a Deterrent to Entry: Evidence from the European Pharmaceutical Market," American Economic Journal: Microeconomics, American Economic Association, vol. 15(2), pages 345-383, May.
    • Handle: RePEc:aea:aejmic:v:15:y:2023:i:2:p:345-83
    DOI: 10.1257/mic.20210053
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    Cited by:

    1. de Leverano, Adriano & Baulia, Susmita, 2023. "A new indicator to implement effective spending review policies in the public procurement for standardized goods," ZEW Discussion Papers 23-063, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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