title: Competition and the Reference Pricing Scheme for pharmaceuticals.
abstract: By introducing n (>1) firms with infinite cross-price elasticity (i.e. generic drugs), we explore the effects of competition on the optimal pricing strategies under a Reference Pricing Scheme (RPS). A two-stage model repeated infinite number of times is presented. When stage 1 is competitive, the equilibrium in pure strategies exists and is efficient only if the reference price (R) does not depend on the price of the branded product. When generics collude, the way R is designed is crucial for both the stability of the cartel among generics and the collusive prices in equilibrium. An optimally designed RPS must set R as a function only of the infinitely elastic side of the market and should provide the right incentives for competition.
authors.affiliation: ECONPUBBLICA, Department of Institutional Analysis and Public Management, Bocconi University, Via Roentgen 1, 20136, Milan, Italy. simone.ghislandi@unibocconi.it
authors.forename: Simone
authors.initials: S
authors.lastname: Ghislandi
mesh_terms: D003132:Commerce / Q000191:economics*; D003365:Costs and Cost Analysis; D004345:Drug Industry / Q000191:economics*; D016568:Drugs, Generic / Q000191:economics*; D004465:Economic Competition / Q000191:economics*; D017850:Economics, Pharmaceutical; D006801:Humans; D017059:Models, Econometric; D012015:Reference Standards
chemical_list: D016568:Drugs, Generic