Document Type

Article

Publication Date

3-2-2010

Publication Title

The Journal of Industrial Economics

Department

Department of Economics

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.

DOI

10.1111/j.1467-6451.2010.00408.x

Comments

The attached article is the preprint posted on SSRN. The publisher's final pdf version cannot be shared due to publisher copyright restraints.

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