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  4. May 2023
  5. Reference Pricing as a Deterrent to Entry: Evidence from the European Pharmaceutical Market

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Reference Pricing as a Deterrent to Entry: Evidence from the European Pharmaceutical Market

  • Luca Maini
  • Fabio Pammolli
American Economic Journal: Microeconomics
vol. 15, no. 2, May 2023
(pp. 345–83)
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Abstract

External reference pricing (ERP), the practice of benchmarking domestic drug prices to foreign prices, generates an incentive for firms to withhold products from low-income countries. Using a novel moment inequality approach, we estimate a structural model to measure how ERP policies affect access to innovative drugs across Europe. We find that ERP increases entry delays in eight low-income European countries by up to one year per drug. The European Union could remove these delays without replacing ERP by compensating firms through lump-sum transfers at the cost of around €18 million per drug.

Citation

Maini, Luca, and Fabio Pammolli. 2023. "Reference Pricing as a Deterrent to Entry: Evidence from the European Pharmaceutical Market." American Economic Journal: Microeconomics, 15 (2): 345–83. DOI: 10.1257/mic.20210053

Additional Materials

JEL Classification

  • L13 Oligopoly and Other Imperfect Markets
  • L51 Economics of Regulation
  • L65 Chemicals; Plastics; Rubber; Drugs; Biotechnology
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