IDEAS home Printed from https://ideas.repec.org/a/bla/jindec/v58y2010i1p32-53.html
   My bibliography  Save this article

COUNTERVAILING POWER IN WHOLESALE PHARMACEUTICALS -super-

Author

Listed:
  • SARA FISHER ELLISON
  • CHRISTOPHER M. SNYDER

Abstract

Using data on wholesale prices for antibiotics sold to U.S. drugstores, we test the growing theoretical literature on 'countervailing power' (a term for the ability of large buyers to extract discounts from suppliers). Large drugstores receive a modest discount for antibiotics produced by competing suppliers but no discount for antibiotics produced by monopolists. These findings support theories suggesting that supplier competition is a prerequisite for countervailing power. As further evidence for the importance of supplier competition, we find that hospitals receive substantial discounts relative to drugstores, attributed to hospitals' greater ability to induce supplier competition through restrictive formularies. Copyright 2010 The Authors. Journal compilation 2010 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.

Suggested Citation

  • Sara Fisher Ellison & Christopher M. Snyder, 2010. "COUNTERVAILING POWER IN WHOLESALE PHARMACEUTICALS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 32-53, March.
    • Handle: RePEc:bla:jindec:v:58:y:2010:i:1:p:32-53
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-6451.2010.00408.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Porter, Michael E, 1974. "Consumer Behavior, Retailer Power and Market Performance in Consumer Goods Industries," The Review of Economics and Statistics, MIT Press, vol. 56(4), pages 419-436, November.
    2. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
    3. Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, vol. 51(3), pages 647-667, April.
    4. Basker, Emek, 2011. "The Causes and Consequences of Wal-Mart’s Growth," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 110-134.
    5. Moore, William J & Newman, Robert J, 1993. "Drug Formulary Restrictions as a Cost-Containment Policy in Medicaid Programs," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 71-97, April.
    6. Katz, Michael L, 1987. "The Welfare Effects of Third-Degree Price Discrimination in," American Economic Review, American Economic Association, vol. 77(1), pages 154-167, March.
    7. Suchan Chae & Paul Heidhues, 2004. "Buyers' Alliances for Bargaining Power," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 731-754, December.
    8. Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, vol. 98(391), pages 484-497, June.
    9. Christopher M. Snyder, 1996. "A Dynamic Theory of Countervailing Power," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 747-769, Winter.
    10. Dana, James D., 2012. "Buyer groups as strategic commitments," Games and Economic Behavior, Elsevier, vol. 74(2), pages 470-485.
    11. Alexander Raskovich, 2003. "Pivotal Buyers and Bargaining Position," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 405-426, December.
    12. Hans-Theo Normann & Bradley J. Ruffle & Christopher M. Snyder, 2007. "Do buyer-size discounts depend on the curvature of the surplus function? Experimental tests of bargaining models," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 747-767, September.
    13. Roman Inderst & Greg Shaffer, 2007. "Retail Mergers, Buyer Power and Product Variety," Economic Journal, Royal Economic Society, vol. 117(516), pages 45-67, January.
    14. Dranove, David, 1989. "Medicaid Drug Formulary Restrictions," Journal of Law and Economics, University of Chicago Press, vol. 32(1), pages 143-162, April.
    15. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
    16. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    17. Chen, Zhiqi, 2003. " Dominant Retailers and the Countervailing-Power Hypothesis," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 612-625, Winter.
    18. Tasneem Chipty & Christopher M. Snyder, 1999. "The Role Of Firm Size In Bilateral Bargaining: A Study Of The Cable Television Industry," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 326-340, May.
    19. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-430, March.
    20. Dranove, David & Cone, Kenneth, 1985. "Do state rate setting regulations really lower hospital expenses?," Journal of Health Economics, Elsevier, vol. 4(2), pages 159-165, June.
    21. Inderst, Roman & Wey, Christian, 2003. " Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 1-19, Spring.
    22. Kenneth Elzinga & David Mills, 1997. "The Distribution and Pricing of Prescription Drugs," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 4(3), pages 287-300.
    23. Can Erutku, 2005. "Buying power and strategic interactions," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1160-1172, November.
    24. Judith K. Hellerstein, 1998. "The Importance of the Physician in the Generic Versus Trade-Name Prescription Decision," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 108-136, Spring.
    25. Adamache, Killard W. & Sloan, Frank A., 1983. "Competition between non-profit and for-profit health insurers," Journal of Health Economics, Elsevier, vol. 2(3), pages 225-243, December.
    26. LaFrance, Vincent A, 1979. "The Impact of Buyer Concentration-An Extension," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 475-476, August.
    27. von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June.
    28. Adilov, Nodir & Alexander, Peter J., 2006. "Horizontal merger: Pivotal buyers and bargaining power," Economics Letters, Elsevier, vol. 91(3), pages 307-311, June.
    29. Scheffman, David T & Spiller, Pablo T, 1992. "Buyer's Strategies, Entry Barriers, and Competition," Economic Inquiry, Western Economic Association International, vol. 30(3), pages 418-436, July.
    30. Esther Gal-Or & Anthony Dukes, 2006. "On the Profitability of Media Mergers," The Journal of Business, University of Chicago Press, vol. 79(2), pages 489-526, March.
    31. Gans, Joshua S. & King, Stephen P., 2002. "Exclusionary contracts and competition for large buyers," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1363-1381, November.
    32. Tyagi, Rajeev K, 2001. "Why Do Suppliers Charge Larger Buyers Lower Prices?," Journal of Industrial Economics, Wiley Blackwell, vol. 49(1), pages 45-61, March.
    33. Ilya Segal, 2003. "Collusion, Exclusion, and Inclusion in Random-Order Bargaining," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 439-460.
    34. Lustgarten, Steven H, 1975. "The Impact of Buyer Concentration in Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 125-132, May.
    35. Bradley J. Ruffle, 2000. "Some factors affecting demand withholding in posted-offer markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(3), pages 529-544.
    36. Lott, John R, Jr & Roberts, Russell D, 1991. "A Guide to the Pitfalls of Identifying Price Discrimination," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 14-23, January.
    37. Snyder, Christopher M., 1998. "Why do larger buyers pay lower prices? Intense supplier competition," Economics Letters, Elsevier, vol. 58(2), pages 205-209, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jindec:v:58:y:2010:i:1:p:32-53. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery) or (Christopher F. Baum). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.