Squeezing the last drop out of your suppliers – University of Copenhagen

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Squeezing the last drop out of your suppliers

An empirical study of market-based purchasing policies for generic pharmaceuticals

CHEP/CORS SEMINAR by David Granlund (Umeå University)
Joint with: Mats A. Bergman and Niklas Rudholm
 
Abstract:
We study the effect of the degree of exclusivity for the lowest bidder on the average price of generic pharmaceuticals in the short and long terms. Our results indicate that a 1-percentage-point gain in market share of the lowest bidder reduces average costs by 0.3% in the short term and 0.8% in the long term, but also reduces the number of firms by 1%. We find that reducing the number of firms has a strong positive (and hence counteracting) effect on average prices, i.e., a 1% reduction raises prices by approximately 1%.