Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals

Dubois, Pierre and Lasio, Laura (2018) Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals. American Economic Review (AER), 108 (12). pp. 3685-3724.

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Official URL: http://tse-fr.eu/pub/32643

Abstract

We provide a method allowing identification of margins in an oligopoly price competition game when prices may not be freely chosen in some markets, for example due to regulation. We use our identification strategy to study the effects of regulatory constraints in the pharmaceutical industry. We provide the first structural estimation of price-cost margins on a regulated market with price constraints and show how to identify unknown possibly binding constraints thanks to three different markets (US, Germany and France) with varying regulatory constraints. We use the market for anti-ulcer drugs to identify whether regulation in France truly affects margins and prices and relate regulatory reforms to industry pricing equilibrium. Empirical results show that firms were especially constrained in price setting after the different reforms in 2004. Counterfactual simulations show that total spending significantly increased because of the new price regulation by displacing part of the demand from generics to branded drugs.

Item Type: Article
Language: English
Date: December 2018
Refereed: Yes
Uncontrolled Keywords: empirical IO, price constraints, Bertrand competition, regulation, pharmaceuticals, antiulcer drugs
JEL codes: I18 - Government Policy; Regulation; Public Health
L10 - General
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 May 2018 12:55
Last Modified: 22 Jan 2019 11:23
OAI ID: oai:tse-fr.eu:32643
URI: http://publications.ut-capitole.fr/id/eprint/25980

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