The Interaction between a Most-Favored-Customer Clause and Price Dispersion: an Empirical Examination of the Medicaid Rebate Rules of 1990
نویسنده
چکیده
This paper examines the effect of the MFC rules adopted by Medicaid on both price dispersion and price levels in the wholesale pharmaceutical market. Theory suggests we should see less dispersion in products with more ex ante price dispersion. Using data which can only measure some dimensions of price discrimination, I find that these types of discrimination fall for products sold to hospitals, but not drugstores. Branded drugs facing generic competition have the most dispersion ex ante. Prices of these brands rise with dispersion at the implementation of the new rules. The last two results are consistent with Scott Morton (1997) where I look only at price changes due to the law. The results of this paper confirm that part of the mechanism of action for the price increase is the high level of price dispersion for some products.
منابع مشابه
The strategic response by pharmaceutical firms to the Medicaid most-favored-customer rules.
In 1991 a most-favored customer (MFC) rule was adopted to govern pharmaceutical prices paid by Medicaid. Theoretical models show that an MFC rule commits a firm to compete less aggressively in prices. I find that the price of branded products facing generic competition rose (4% on average). Brands protected by patents did not significantly increase in price. Generics in concentrated markets sho...
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