Scandinavian Working Papers in Economics

HUI Working Papers,
HUI Research

No 116: Squeezing the last drop out of your suppliers: an empirical study of market-based purchasing policies for generic pharmaceuticals

Mats Bergman , David Granlund and Niklas Rudholm ()
Additional contact information
Mats Bergman: HUI Research, Postal: SE-10329 Stockholm, Sweden and Södertörn University, SE-14189 Huddinge, Sweden
David Granlund: Umeå University, Postal: SE-90189 Umeå, Sweden
Niklas Rudholm: HUI Research, Postal: SE-10329 Stockholm, Sweden and Dalarna University, SE-79188 Falun, Sweden

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%.

Keywords: pharmaceutical industry; generic competition; generic drugs; brand-name drugs

JEL-codes: D80; D83; I11; L65

38 pages, February 1, 2016

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