Equilibrium Effects of Pharmaceutical Bundling: Evidence from India

68 Pages Posted: 6 Apr 2022 Last revised: 1 May 2023

See all articles by Shengmao Cao

Shengmao Cao

Kellogg School of Management

Chirantan Chatterjee

SPRU-Sussex, U-Sussex Business School; Hoover Institution, Stanford University

Date Written: February 17, 2022

Abstract

We study the equilibrium effects of competitive bundling in the context of the Indian pharmaceutical industry. Fixed-dose combinations (FDCs), which bundle two or more drugs in a single pill, account for over 50% of pharmaceutical revenue in India. We find that FDCs on average sell at a 28\% discount while increasing standalone component prices by 1.3%. New FDCs significantly increase the utilization of combination treatment. We estimate an equilibrium model of drug demand and supply to quantify the welfare effects of FDCs in the market for Alzheimer's drugs. Our results show that competitive bundling benefits both consumers and firms in this market because of market expansion and cost savings. Counterfactual analysis suggests that uniformly strict FDC regulations, such as those in the US, could potentially deter FDC entry and result in underutilization of valuable combination treatment.

Keywords: Competitive bundling; pharmaceutical markets; equilibrium effects; regulation

Suggested Citation

Cao, Shengmao and Chatterjee, Chirantan, Equilibrium Effects of Pharmaceutical Bundling: Evidence from India (February 17, 2022). Available at SSRN: https://ssrn.com/abstract=4037548 or http://dx.doi.org/10.2139/ssrn.4037548

Shengmao Cao (Contact Author)

Kellogg School of Management ( email )

2211 Campus Drive
Evanston, IL 60208
United States
6073791116 (Phone)

HOME PAGE: http://https://www.shengmao-cao.com/

Chirantan Chatterjee

SPRU-Sussex, U-Sussex Business School ( email )

Brighton, BN1 9SL
United Kingdom

HOME PAGE: http://https://profiles.sussex.ac.uk/p535606-chirantan-chatterjee

Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

HOME PAGE: http://https://www.hoover.org/profiles/chirantan-chatterjee

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