Working Paper: NBER ID: w30779
Authors: Juan Pablo Atal; Jos Ignacio Cuesta; Felipe González; Cristóbal Otero
Abstract: We study the effects of competition by state-owned firms, leveraging the decentralized entry of public pharmacies to local markets in Chile. Public pharmacies sell the same drugs at a third of private pharmacy prices, because of stronger upstream bargaining and market power in the private sector, but are of lower quality. Public pharmacies induced market segmentation and price increases in the private sector, which benefited the switchers to the public option but harmed the stayers. The countrywide entry of public pharmacies would reduce yearly consumer drug expenditure by 1.5 percent.
Keywords: public option; pharmaceutical markets; state-owned firms; competition; Chile
JEL Codes: D72; H4; I18; L3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| public pharmacy entry (H51) | decrease in private pharmacy sales (L81) |
| public pharmacy entry (H51) | increase in private pharmacy prices (P22) |
| public pharmacy entry (H51) | reduction in annual consumer drug expenditure (H51) |