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

52 Pages Posted: 4 Nov 2020 Last revised: 3 Dec 2020

See all articles by Luca Maini

Luca Maini

UNC Chapel Hill; University of North Carolina (UNC) at Chapel Hill - Cecil G. Sheps Center for Health Services Research

Fabio Pammolli

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering; CERM Foundation

Date Written: April 9, 2020

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 the extent to which 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 euro per drug.

Keywords: external reference pricing, moment inequality, pharmaceutical market

JEL Classification: L11, L65, I18

Suggested Citation

Maini, Luca and Pammolli, Fabio, Reference Pricing as a Deterrent to Entry: Evidence from the European Pharmaceutical Market (April 9, 2020). Available at SSRN: https://ssrn.com/abstract=3694471 or http://dx.doi.org/10.2139/ssrn.3694471

Luca Maini (Contact Author)

UNC Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC 27514
United States

University of North Carolina (UNC) at Chapel Hill - Cecil G. Sheps Center for Health Services Research ( email )

725 Airport Road, CB# 7590
Chapel Hill, NC 27599-7590
United States

Fabio Pammolli

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering ( email )

Via Lambruschini 4C - building 26/A
Milano, 20156
Italy

CERM Foundation ( email )

Via Fiorentina, 1
Siena, Siena 53100
Italy

HOME PAGE: http://www.cermlab.it

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
59
Abstract Views
316
rank
441,003
PlumX Metrics