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Price discrimination in the Italian medical device industry: an empirical analysis

Author

Listed:
  • G. Crea

    (Università di Pavia)

  • A. Cavaliere

    (Università di Pavia)

  • A. Cozzi

    (Università di Pavia)

Abstract

In this paper we ascertain that the Italian market for medical devices is characterized by significant price dispersion. We have, therefore, carried out an econometric analysis, as well as a Bayesian network analysis to verify if price dispersion is due to price discrimination. We have found that ASLs (Aziende Sanitarie Locali) incur higher procurement costs than AOs (Aziende Ospedaliere), which purchase larger quantities as Centralized purchasing agencies do. Consequently, second-degree price discrimination may be one of the causes of price differences. Price levels are also inversely related to product age because of intense innovative activity, making product differentiation more likely than price discrimination. Public procurement agents located in Southern Italy pay higher prices than those located in Northern or Central Italy. This is due to the higher probability for Southern procurement agents to purchase from independent wholesalers, rather than from producers, implying a double marginalization effect which raises final prices. It is also more likely that obsolete medical devices are sold to Southern health care providers.

Suggested Citation

  • G. Crea & A. Cavaliere & A. Cozzi, 2019. "Price discrimination in the Italian medical device industry: an empirical analysis," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(2), pages 571-608, July.
    • Handle: RePEc:spr:epolit:v:36:y:2019:i:2:d:10.1007_s40888-019-00149-5
    DOI: 10.1007/s40888-019-00149-5
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    References listed on IDEAS

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    1. Gianluca Baio & Laura Magazzini & Claudia Oglialoro & Fabio Pammolli & Massimo Riccaboni, 2005. "Medical Devices: Competitiveness and Impact on Public Health Expenditure," Working Papers CERM 05-2005, Competitività, Regole, Mercati (CERM).
    2. Mercedes Vellez, 2011. "Auctions versus Negotiations: Evidence from Public Procurement in the Italian Healthcare Sector," CEIS Research Paper 191, Tor Vergata University, CEIS, revised 29 Mar 2011.
    3. Matthew Grennan, 2013. "Price Discrimination and Bargaining: Empirical Evidence from Medical Devices," American Economic Review, American Economic Association, vol. 103(1), pages 145-177, February.
    4. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654, Elsevier.
    5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    6. Sorenson, Corinna & Kanavos, Panos, 2011. "Medical technology procurement in Europe: A cross-country comparison of current practice and policy," Health Policy, Elsevier, vol. 100(1), pages 43-50, April.
    7. Andrea Bonaccorsi & Thomas Lyon & Fabio Pammolli & Giuseppe Turchetti, 1999. "Auctions vs. Bargaining: An Empirical Analysis of Medical Device Procurement," LEM Papers Series 1999/20, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    8. Egil Kjerstad, 2005. "Auctions vs negotiations: a study of price differentials," Health Economics, John Wiley & Sons, Ltd., vol. 14(12), pages 1239-1251, December.
    9. Mercedes Vellez, 2012. "Determinants of Price Discrimination in the Acquisition of Medical Devices," CEIS Research Paper 235, Tor Vergata University, CEIS, revised 11 May 2012.
    10. repec:reg:rpubli:395 is not listed on IDEAS
    11. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
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    Cited by:

    1. Beata GAVUROVA & Martin MIKESKA & Eva HUCULOVA, 2020. "Evaluation Of Selected Determinants Of Public Procurement In The Health Sector," REVISTA ADMINISTRATIE SI MANAGEMENT PUBLIC, Faculty of Administration and Public Management, Academy of Economic Studies, Bucharest, Romania, vol. 2020(34), pages 45-63, June.

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    More about this item

    Keywords

    Price dispersion; Bayesian networks; Double marginalization;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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