IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v300y2022i1p296-309.html
   My bibliography  Save this article

Price-volume agreements: A one principal/two agents model

Author

Listed:
  • Biancalani, Francesco
  • Gnecco, Giorgio
  • Riccaboni, Massimo

Abstract

We present a one principal/two agents model of price-volume agreement, which involves one buyer (the principal) and competition between two manufacturers (the two agents). A theoretical analysis is presented, showing that, in accordance with empirical evidence from the literature on price-volume agreements in the pharmaceutical sector, manufacturers’ competition in a price-volume agreement scheme can decrease buyer’s expenditure especially when the second manufacturer, which has the possibility to enter (or not enter) later, has sufficiently small marginal production cost. Moreover, it is shown that the adoption of a price-volume agreement scheme for the first manufacturer can benefit the buyer with respect to the case in which single-price contracts are proposed to the former. The paper contributes to fill a gap in the literature about theoretical models of price-volume agreements, which are still scarce according to a recent review.

Suggested Citation

  • Biancalani, Francesco & Gnecco, Giorgio & Riccaboni, Massimo, 2022. "Price-volume agreements: A one principal/two agents model," European Journal of Operational Research, Elsevier, vol. 300(1), pages 296-309.
    • Handle: RePEc:eee:ejores:v:300:y:2022:i:1:p:296-309
    DOI: 10.1016/j.ejor.2021.10.050
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221721008997
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2021.10.050?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    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. Gregory S. Zaric & Bernie J. O'Brien, 2005. "Analysis of a pharmaceutical risk sharing agreement based on the purchaser's total budget," Health Economics, John Wiley & Sons, Ltd., vol. 14(8), pages 793-803, August.
    2. Reza Mahjoub & Fredrik Odegaard & Gregory S Zaric, 2014. "Health-based pharmaceutical pay-for-performance risk-sharing agreements," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 65(4), pages 588-604, April.
    3. Josh J. Carlson & Shuxian Chen & Louis P. Garrison, 2017. "Performance-Based Risk-Sharing Arrangements: An Updated International Review," PharmacoEconomics, Springer, vol. 35(10), pages 1063-1072, October.
    4. De Marco Giuseppe & Immordino Giovanni, 2014. "Reciprocity in the Principal–Multiple Agent Model," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 445-482, January.
    5. Srabana Gupta & Richard E. Romano, 1998. "Monitoring the Principal with Multiple Agents," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 427-442, Summer.
    6. Hui Zhang & Gregory Zaric, 2015. "Using price–volume agreements to manage pharmaceutical leakage and off-label promotion," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(7), pages 747-761, September.
    7. van Ackere, Ann, 1993. "The principal/agent paradigm: Its relevance to various functional fields," European Journal of Operational Research, Elsevier, vol. 70(1), pages 83-103, October.
    8. Fernando Antonanzas & Carmelo Juárez-Castelló & Reyes Lorente & Roberto Rodríguez-Ibeas, 2019. "The Use of Risk-Sharing Contracts in Healthcare: Theoretical and Empirical Assessments," PharmacoEconomics, Springer, vol. 37(12), pages 1469-1483, December.
    9. Osano, Hiroshi, 1998. "Moral hazard and renegotiation in multi-agent incentive contracts when each agent makes a renegotiation offer," Journal of Economic Behavior & Organization, Elsevier, vol. 37(2), pages 207-230, October.
    10. Arieh Gavious & Dan Greenberg & Ariel Hammerman & Ella Segev, 2014. "Impact of a financial risk-sharing scheme on budget-impact estimations: a game-theoretic approach," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(5), pages 553-561, June.
    11. Wu, Zhengping & Crama, Pascale & Zhu, Wanshan, 2012. "The newsvendor’s optimal incentive contracts for multiple advertisers," European Journal of Operational Research, Elsevier, vol. 220(1), pages 171-181.
    12. Viswanathan, S. & Wang, Qinan, 2003. "Discount pricing decisions in distribution channels with price-sensitive demand," European Journal of Operational Research, Elsevier, vol. 149(3), pages 571-587, September.
    13. Roediger, Alexander & Wilsdon, Tim & Haderi, Artes & Pendleton, Kathy & Azais, Boris, 2019. "Competition between on-patent medicines in Europe," Health Policy, Elsevier, vol. 123(7), pages 652-660.
    14. Ohad Kadan & Philip J. Reny & Jeroen M. Swinkels, 2017. "Existence of Optimal Mechanisms in Principal‐Agent Problems," Econometrica, Econometric Society, vol. 85, pages 769-823, May.
    15. Demski, Joel S. & Sappington, David, 1984. "Optimal incentive contracts with multiple agents," Journal of Economic Theory, Elsevier, vol. 33(1), pages 152-171, June.
    16. Makowski Louis & Mezzetti Claudio, 1994. "Bayesian and Weakly Robust First Best Mechanisms: Characterizations," Journal of Economic Theory, Elsevier, vol. 64(2), pages 500-519, December.
    17. Peter Bogetoft, 1997. "DEA-based yardstick competition: The optimality of best practice regulation," Annals of Operations Research, Springer, vol. 73(0), pages 277-298, October.
    18. Sappington, David & Demski, Joel S., 1983. "Multi-agent control in perfectly correlated environments," Economics Letters, Elsevier, vol. 13(4), pages 325-330.
    19. Alessandra Ferrario & Diāna Arāja & Tomasz Bochenek & Tarik Čatić & Dávid Dankó & Maria Dimitrova & Jurij Fürst & Ieva Greičiūtė-Kuprijanov & Iris Hoxha & Arianit Jakupi & Erki Laidmäe & Olga Löblová , 2017. "The Implementation of Managed Entry Agreements in Central and Eastern Europe: Findings and Implications," PharmacoEconomics, Springer, vol. 35(12), pages 1271-1285, December.
    20. Andrew Henry & Christian Wernz, 2015. "A multiscale decision theory analysis for revenue sharing in three-stage supply chains," Annals of Operations Research, Springer, vol. 226(1), pages 277-300, March.
    21. Park, Sun-Young & Han, Euna & Kim, Jini & Lee, Eui-Kyung, 2016. "Factors influencing the difference between forecasted and actual drug sales volumes under the price–volume agreement in South Korea," Health Policy, Elsevier, vol. 120(8), pages 867-874.
    22. Hiroshi Osano, 1999. "Implementation of multi-agent incentive contracts with the principal's renegotiation offer," Review of Economic Design, Springer;Society for Economic Design, vol. 4(2), pages 161-177.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bru, Lluís & Cardona, Daniel & Sákovics, József, 2023. "Block sourcing plus," European Journal of Operational Research, Elsevier, vol. 305(3), pages 1130-1140.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wettstein, Dominik J. & Boes, Stefan, 2022. "How value-based policy interventions influence price negotiations for new medicines: An experimental approach and initial evidence," Health Policy, Elsevier, vol. 126(2), pages 112-121.
    2. Osano, Hiroshi & Kobayashi, Mami, 2005. "Double moral hazard and renegotiation," Research in Economics, Elsevier, vol. 59(4), pages 345-364, December.
    3. A. Carletto & A. Cicchetti & S. Coretti & V. Moramarco & M. Ruggeri, 2019. "Money back guarantee? A cost–benefit framework of performance-based agreements (PBAs) for the reimbursement of pharmaceuticals," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 9(1), pages 89-101, March.
    4. Fleckinger, Pierre & Martimort, David & Roux, Nicolas, 2023. "Should They Compete or Should They Cooperate? The View of Agency Theory," TSE Working Papers 23-1421, Toulouse School of Economics (TSE), revised Jan 2024.
    5. Gregory J. Critchley & Gregory S. Zaric, 2019. "The impact of pharmaceutical marketing on market access, treatment coverage, pricing, and social welfare," Health Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 1035-1051, August.
    6. Bernarda Zamora & Pablo Amorós, 1998. "- Implementation Of Optimal Contracts Under Adverse Selection," Working Papers. Serie AD 1998-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    7. Franck, Raphaël & Krausz, Miriam, 2008. "Why separate monetary policy from banking supervision?," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 388-411, September.
    8. Vergara, Marcos & Bonilla, Claudio A. & Sepulveda, Jean P., 2016. "The complementarity effect: Effort and sharing in the entrepreneur and venture capital contract," European Journal of Operational Research, Elsevier, vol. 254(3), pages 1017-1025.
    9. Friedman, Henry L., 2014. "Implications of power: When the CEO can pressure the CFO to bias reports," Journal of Accounting and Economics, Elsevier, vol. 58(1), pages 117-141.
    10. Antonia Morga & Ana Xavier, "undated". "Hospital specialists' private practice and its impact on the number of NHS patients treated and on the delay for elective surgery," Discussion Papers 01/01, Department of Economics, University of York.
    11. Zhao, Rui R., 2007. "Dynamic risk-sharing with two-sided moral hazard," Journal of Economic Theory, Elsevier, vol. 136(1), pages 601-640, September.
    12. Han, Euna & Park, Sun-Young & Lee, Eui-Kyung, 2016. "Assessment of the Price–Volume Agreement Program in South Korea," Health Policy, Elsevier, vol. 120(10), pages 1209-1215.
    13. Corbett, Charles J. & DeCroix, Gregory A. & Ha, Albert Y., 2005. "Optimal shared-savings contracts in supply chains: Linear contracts and double moral hazard," European Journal of Operational Research, Elsevier, vol. 163(3), pages 653-667, June.
    14. Alessandra Ferrario & Diāna Arāja & Tomasz Bochenek & Tarik Čatić & Dávid Dankó & Maria Dimitrova & Jurij Fürst & Ieva Greičiūtė-Kuprijanov & Iris Hoxha & Arianit Jakupi & Erki Laidmäe & Olga Löblová , 2017. "The Implementation of Managed Entry Agreements in Central and Eastern Europe: Findings and Implications," PharmacoEconomics, Springer, vol. 35(12), pages 1271-1285, December.
    15. Batabyal, Amitrajeet A., 1998. "Developing countries and international environmental agreements: The case of perfect correlation," International Review of Economics & Finance, Elsevier, vol. 7(1), pages 85-102.
    16. Antreas D. Athanassopoulos, 1998. "Decision Support for Target-Based Resource Allocation of Public Services in Multiunit and Multilevel Systems," Management Science, INFORMS, vol. 44(2), pages 173-187, February.
    17. Park, Sun-Young & Han, Euna & Kim, Jini & Lee, Eui-Kyung, 2016. "Factors influencing the difference between forecasted and actual drug sales volumes under the price–volume agreement in South Korea," Health Policy, Elsevier, vol. 120(8), pages 867-874.
    18. Amitrajeet Batabyal, 1999. "Developing Countries and Environmental Protection: Contract Design in Perfectly Correlated Environments," Open Economies Review, Springer, vol. 10(3), pages 305-323, July.
    19. Rosenkranz, Stephanie & Schmitz, Patrick W., 2001. "Vertikale Unternehmenskooperationen," MPRA Paper 6930, University Library of Munich, Germany.
    20. García-Collado, Carlos Gustavo & Martínez-de-la-Plata, Juan Enrique & Montoro, María del Mar Maldonado & Morales, Alberto Jiménez & Hernández, Miguel Ángel Calleja & Martínez, Fernando Martínez, 2021. "Impact of a risk-sharing agreement in rheumatoid arthritis in Spain," Health Policy, Elsevier, vol. 125(3), pages 335-340.

    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:eee:ejores:v:300:y:2022:i:1:p:296-309. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.