Working Paper: NBER ID: w29206
Authors: Sharat Ganapati; Rebecca McKibbin
Abstract: There is wide dispersion in pharmaceutical prices across countries with comparable quality standards. Under monopoly, off-patent and generic drug prices are at least four times higher in the United States than in comparable English-speaking high income countries. With five or more competitors, off-patent drug prices are similar or lower. Our analysis shows that differential US markups are largely driven by the market power of drug suppliers and not due to wholesale intermediaries or pharmacies. Furthermore, we show that the traditional mechanism of reducing market power – free entry – is limited because implied entry costs are substantially higher in the US.
Keywords: pharmaceuticals; generic drugs; market competition; price dispersion
JEL Codes: F14; I11; L44; L65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased competition (L13) | lower prices (P22) |
| number of suppliers (L81) | pricing of pharmaceuticals (L11) |
| competition among suppliers (D41) | reduced prices (P22) |
| market power of drug suppliers (D42) | differential U.S. markups (F12) |
| high fixed costs (G31) | inhibit competition (L49) |
| high fixed costs inhibit competition (L11) | maintain higher prices (L11) |