Identifying Industry Margins with Price Constraints: Structural Estimation on Pharmaceuticals
American Economic Review · 2018 · Volume 108 · Issue 12
Abstract
We develop a structural model to investigate the effects of pharmaceutical price regulation on demand and on manufacturers' price-setting behavior in France. We estimate price-cost margins in a regulated market with price constraints and infer whether these constraints are binding, exploiting cost restrictions across drugs, which come from observing the same drugs in potentially price-constrained markets (France) and in markets where prices are unregulated (US and Germany). Our counterfactual simulations suggest that price constraints generated modest savings for anti-ulcer drugs in 2003–2013 (2 percent of total expenses), relative to a free pricing scenario, and shifted consumption from generic to branded drugs.
Keywords
Model Construction and Estimation, Production, Cost, Capital, Total Factor, and Multifactor Productivity, Capacity, Health: Government Policy, Regulation, Public Health, Oligopoly and Other Imperfect Markets, Economics of Regulation, Chemicals, Rubber, Drugs, Biotechnology, Plastics
Enable JavaScript for citation tools and additional paper interactions.