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  4. December 2018
  5. Identifying Industry Margins with Price Constraints: Structural Estimation on Pharmaceuticals

Identifying Industry Margins with Price Constraints: Structural Estimation on Pharmaceuticals

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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.

Citation

Dubois, Pierre, and Laura Lasio. 2018. "Identifying Industry Margins with Price Constraints: Structural Estimation on Pharmaceuticals." American Economic Review, 108 (12): 3685-3724. DOI: 10.1257/aer.20140202

Additional Materials

JEL Classification

  • C51 Model Construction and Estimation
  • D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • I18 Health: Government Policy; Regulation; Public Health
  • L13 Oligopoly and Other Imperfect Markets
  • L51 Economics of Regulation
  • L65 Chemicals; Rubber; Drugs; Biotechnology; Plastics