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COUNTERVAILING POWER IN WHOLESALE PHARMACEUTICALS

COUNTERVAILING POWER IN WHOLESALE PHARMACEUTICALS Using data on wholesale prices for antibiotics sold to U.S. drugstores, we test the growing theoretical literature on ‘countervailing power’ (a term for the ability of large buyers to extract discounts from suppliers). Large drugstores receive a modest discount for antibiotics produced by competing suppliers but no discount for antibiotics produced by monopolists. These findings support theories suggesting that supplier competition is a prerequisite for countervailing power. As further evidence for the importance of supplier competition, we find that hospitals receive substantial discounts relative to drugstores, attributed to hospitals' greater ability to induce supplier competition through restrictive formularies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Industrial Economics Wiley

COUNTERVAILING POWER IN WHOLESALE PHARMACEUTICALS

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References (114)

Publisher
Wiley
Copyright
© 2010 The Authors. Journal compilation © 2010 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics
ISSN
0022-1821
eISSN
1467-6451
DOI
10.1111/j.1467-6451.2010.00408.x
Publisher site
See Article on Publisher Site

Abstract

Using data on wholesale prices for antibiotics sold to U.S. drugstores, we test the growing theoretical literature on ‘countervailing power’ (a term for the ability of large buyers to extract discounts from suppliers). Large drugstores receive a modest discount for antibiotics produced by competing suppliers but no discount for antibiotics produced by monopolists. These findings support theories suggesting that supplier competition is a prerequisite for countervailing power. As further evidence for the importance of supplier competition, we find that hospitals receive substantial discounts relative to drugstores, attributed to hospitals' greater ability to induce supplier competition through restrictive formularies.

Journal

The Journal of Industrial EconomicsWiley

Published: Mar 1, 2010

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