Regulation and competition in the Taiwanese pharmaceutical market under national health insurance.

Ya-Ming Liu, Yea-Huei Kao Yang, Chee-Ruey Hsieh

Department of Economics, College of Social Sciences, National Cheng-Kung University, 1 University Road, Tainan, 70101 Taiwan. ymliu@mail.ncku.edu.tw

Journal of health economics 2012 May

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This article investigates the determinants of the prices of pharmaceuticals and their impact on the demand for prescription drugs in the context of Taiwan's pharmaceutical market where medical providers earn profit directly from prescribing and dispensing drugs. Based on product-level data, we find evidence that the profit-seeking behavior of the medical providers in the prescription drug market transfers the force of competition from the unregulated wholesale market to the regulated retail market and hence market competition still plays an important role in the determination of the regulated price. We also find that the profit-seeking behavior plays a similar role to advertising in that it increases the brand loyalty and hence lowers price elasticity. An important implication of our study is that the institutional features in the pharmaceutical market matter in shaping the nature of pharmaceutical competition and the responsiveness of pharmaceutical consumption with respect to changes in price. Copyright © 2012 Elsevier B.V. All rights reserved.

Citation

Ya-Ming Liu, Yea-Huei Kao Yang, Chee-Ruey Hsieh. Regulation and competition in the Taiwanese pharmaceutical market under national health insurance. Journal of health economics. 2012 May;31(3):471-83