Competitive Bidding in Drug Procurement: Evidence from China
60 Pages Posted: 11 Oct 2021 Last revised: 28 Jan 2022
Date Written: October 11, 2021
We study the impact of competitive bidding in the procurement of off-patent drugs. In 2019, China introduced competitive bidding with a quantity guarantee for thirty-one molecules in nine provinces. Using a difference-in-difference design, we show that the program reduced average drug prices by 47.4%. Generic drug firms won the majority of the bids and on average cut prices by 59.4%. We develop a model of demand and supply to quantify the trade-off between lower prices and choice distortions. Competitive bidding increases consumer welfare if policymakers consider brand preferences welfare irrelevant. The program also reduced government expenditures on insurance by 24.3%.
Keywords: competitive bidding, procurement auctions, drug prices, consumer welfare
JEL Classification: I11, I18, L51
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