The Economics of the Public Option: Evidence from Local Pharmaceutical Markets

79 Pages Posted: 20 Apr 2021 Last revised: 13 Dec 2022

See all articles by Juan Pablo Atal

Juan Pablo Atal

University of Pennsylvania

José Ignacio Cuesta

Stanford University, Department of Economics

Felipe González

Queen Mary University of London

Cristóbal Otero

University of California, Berkeley - Department of Economics

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Date Written: December 11, 2022

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: competition, state-owned firms, pharmacies

JEL Classification: D72, H4, I16, L3

Suggested Citation

Atal, Juan Pablo and Cuesta, José Ignacio and González, Felipe and Otero, Cristóbal, The Economics of the Public Option: Evidence from Local Pharmaceutical Markets (December 11, 2022). Available at SSRN: https://ssrn.com/abstract=3821885 or http://dx.doi.org/10.2139/ssrn.3821885

Juan Pablo Atal

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

José Ignacio Cuesta (Contact Author)

Stanford University, Department of Economics ( email )

579 Jane Stanford Way
Stanford, CA CA 94305
United States
94305-6015 (Fax)

Felipe González

Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

Cristóbal Otero

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

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