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Market Power and Regulation in Pharmaceutical Markets

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  • Gugler, Klaus
  • Szücs, Florian

Abstract

We exploit the regulatory environment in the Austrian pharmaceutical market to study the effects of price regulation on market outcomes and consumer welfare. We evaluate all mergers of drug producers in the 2009-2017 period and find that the coexisting regulated and unregulated markets were unequally affected. While M&A have substantially increased prices without regulation, particularly for price-inelastic products, prices did not increase under regulation. Instead, variety increased in regulated markets. Therefore, regulation can successfully mitigate the effects of market power: whereas M&A decrease consumer welfare absent regulation, the additional product variety increases consumer welfare in the regulated market.

Suggested Citation

  • Gugler, Klaus & Szücs, Florian, 2023. "Market Power and Regulation in Pharmaceutical Markets," Department of Economics Working Paper Series 343, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus005:44832642
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    More about this item

    Keywords

    pharmaceuticals; regulation; market power; consumer welfare; pharma mergers; product variety;
    All these keywords.

    JEL classification:

    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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