Essays on the Industrial Organization of Pharmaceutical Markets

Abstract

The economic research presented in this dissertation is motivated by current issues in health economics – a science in between the fields of economics, health sciences, politics and not at least medicine. This dissertation provides theoretical and empirical analyses of the interplay of intra-firm organization, inter-firm competition, market structure and regulation. The research aims to analyze competition on health care markets, to evaluate the effects of regulation on market outcomes, to interpret the policy implications and to gather a better understanding of theoretical and empirical industrial organization in the pharmaceutical markets. The research questions addressed in the chapters of this thesis are all motivated by (recent) developments on the health economic markets and are analyzed by applying and extending different approaches of industrial organization.

The second chapter theoretically analyzes the effects of the introduction of reference pricing for drugs in combination with a copayment of patients. I develop a theoretical model based on a duopoly market with vertically differentiated firms to analyze the effects of the indirect price regulation on market outcomes, the optimal level of regulation and welfare.

Chapter three develops a theoretical multi-stage game combining different existing approaches of industrial organization to analyze the effects of intra-firm structures on the competitive strategies of firms in the pharmaceutical market. Firms are characterized by a mixed ownership structure with independent owners and common ownership via institutional owners. Furthermore, owners delegate all operational decisions like investments in cost-reducing activities, capacities and prices to specialized managers.

Chapter four assesses the reform effects of the liberalization in 2004 of the multiple-ownership ban on the pharmacy market with respect to the retail and the labor market of pharmacists. The developed theoretical model allows firms to locate on a circular city and decide on their optimal store number given the specific characteristics of the pharmacy market. The empirical analysis, based on the predictions from the theoretical model, quantifies the impact of the reform on labor and product markets of pharmacists.