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The Economics of the Public Option: Evidence from Local Pharmaceutical Markets

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Listed:
  • Juan Pablo Atal

    (University of Pennsylvania)

  • Jose Ignacio Cuesta

    (Stanford University and NBER)

  • Felipe Gonzalez

    (Queen Mary University of London)

  • Cristobal Otero

    (University of California Berkeley)

Abstract

We study the effects of competition by state-owned firms, leveraging the decentralized entry of public pharmacies to local markets in Chile. Public pharmacies sell the same drugs at a third of private pharmacy prices, because of stronger upstream bargaining and market power in the private sector, but are of lower quality. Public pharmacies induced market segmentation and price increases in the private sector, which benefited the switchers to the public option but harmed the stayers. The countrywide entry of public pharmacies would reduce yearly consumer drug expenditure by 1.6 percent.

Suggested Citation

  • Juan Pablo Atal & Jose Ignacio Cuesta & Felipe Gonzalez & Cristobal Otero, 2023. "The Economics of the Public Option: Evidence from Local Pharmaceutical Markets," Working Papers 951, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:951
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    Cited by:

    1. Christopher Neilson & Michael Dinerstein & Sebastián Otero, 2020. "The Equilibrium Effects of Public Provision in Education Markets: Evidence from a Public School Expansion Policy," Working Papers 645, Princeton University, Department of Economics, Industrial Relations Section..

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H4 - Public Economics - - Publicly Provided Goods
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise

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