Reference Pricing as a Deterrent to Entry: Evidence from the European Pharmaceutical Market
52 Pages Posted: 4 Nov 2020 Last revised: 3 Dec 2020
Date Written: April 9, 2020
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: Suggested Citation