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Squeezing the last drop out of your suppliers: an empirical study of market-based purchasing policies for generic pharmaceuticals

Author

Listed:
  • Bergman , Mats A.

    (Department of Economics, Södertörn University)

  • Granlund, David

    (Department of Economics, Umeå University)

  • Rudholm, Niklas

    (Department of Economics)

Abstract

We study the effect of the degree of exclusivity for the lowest bidder on the average price of generic pharmaceuticals in the short and long terms. Our results indicate that a 1-percentage-point gain in market share of the lowest bidder reduces average costs by 0.3% in the short term and 0.8% in the long term, but also reduces the number of firms by 1%. We find that reducing the number of firms has a strong positive (and hence counteracting) effect on average prices, i.e., a 1% reduction raises prices by approximately 1%.

Suggested Citation

  • Bergman , Mats A. & Granlund, David & Rudholm, Niklas, 2016. "Squeezing the last drop out of your suppliers: an empirical study of market-based purchasing policies for generic pharmaceuticals," Umeå Economic Studies 921, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0921
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    References listed on IDEAS

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    More about this item

    Keywords

    Pharmaceutical industry; generic competition; generic drugs; brand-name drugs;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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