The Effects of Reference Pricing on Ex-Factory Prices of Rx Drugs in Germany - a Panel Data Approach

21 Pages Posted: 10 Sep 2006

See all articles by Boris Augurzky

Boris Augurzky

Rhine-Westphalia Institute for Economic Research (RWI-Essen); IZA Institute of Labor Economics

Silja Göhlmann

Rhine-Westphalia Institute for Economic Research (RWI-Essen)

Stefan Gress

University of Applied Sciences Fulda

Jürgen Wasem

University of Duisburg-Essen

Date Written: August 2006

Abstract

This paper examines effects of reference pricing for prescription drugs in German social health insurance based on econometric panel data methods. We analyze the effect on ex-factory prices. Moreover, we investigate whether manufacturers adapt prices of their products not subject to reference pricing as a consequence of changes in reference prices of their products subject to reference pricing. We use a large panel data set of nearly all German prescription drugs on a monthly basis between October 1994 and July 2005. Altogether, the data comprise almost 4 million observations. They provide information on ex-factory prices, reference prices, manufacturers, type of prescription drug, and market entries and exits. Our results show that there is no full price adjustment: A 1%-change in reference prices leads to a 0.3%-change in market prices. Price adjustment, however, is fast, it mostly happens in the first month. Furthermore, the first introduction of a reference price reduces market prices of the affected products by approximately 14%. Finally, we observe a significant time effect which is positive in the market without reference prices and negative in that with reference price.

Keywords: Price elasticity, temporal development, fixed effects model

JEL Classification: I11, I18

Suggested Citation

Augurzky, Boris and Göhlmann, Silja and Gress, Stefan and Wasem, Jürgen, The Effects of Reference Pricing on Ex-Factory Prices of Rx Drugs in Germany - a Panel Data Approach (August 2006). RWI Discussion Paper No. 46, Available at SSRN: https://ssrn.com/abstract=929064 or http://dx.doi.org/10.2139/ssrn.929064

Boris Augurzky (Contact Author)

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

45128 Essen
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Silja Göhlmann

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

45128 Essen
Germany

Stefan Gress

University of Applied Sciences Fulda ( email )

Germany

Jürgen Wasem

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

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