Abstract
Constantly rising expenditures for pharmaceuticals require government intervention in firms’ pricing decisions. To this end, reference pricing systems are a frequently employed regulatory mechanism. This paper considers a duopoly market with vertically differentiated firms highlighting the effects of a reference pricing system on prices, consumer and producer surplus, expenditures and welfare. Reference pricing decreases equilibrium prices and induces a more competitive environment. It promotes generic usage leading to increased market coverage. Especially generic consumers benefit from a reference pricing regulation. The losses in producer surplus are mainly born by the brand-name firm. Introducing a reference pricing system unambiguously increases welfare.
Appendix
Prices.
Profits.
References
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Articles in the same Issue
- Frontmatter
- Original Articles
- Immigration and anti-immigrant voting in the 2017 German parliamentary election
- Reference pricing systems on the pharmaceutical market
- Market structure and horizontal growth strategies – A case study of the container shipping industry
- On the effects of e-participation on shadow economy: a worldwide empirical analysis
- Missing growth measurement in Germany
Articles in the same Issue
- Frontmatter
- Original Articles
- Immigration and anti-immigrant voting in the 2017 German parliamentary election
- Reference pricing systems on the pharmaceutical market
- Market structure and horizontal growth strategies – A case study of the container shipping industry
- On the effects of e-participation on shadow economy: a worldwide empirical analysis
- Missing growth measurement in Germany