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Coordinating on lower prices: pharmaceutical pricing under political pressure
Author(s) -
Ellison Sara Fisher,
Wolfram Catherine
Publication year - 2006
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2006.tb00018.x
Subject(s) - politics , vulnerability (computing) , pharmaceutical industry , political action , collective action , economics , action (physics) , monetary economics , public economics , business , market economy , microeconomics , pharmacology , political science , law , medicine , physics , computer security , quantum mechanics , computer science
We investigate the effects of political activity on pharmaceutical prices, focusing on the health care reform period in the early 1990s. We characterize firms based on their vulnerability to future price regulation and find that the more vulnerable firms were more likely to take various actions to forestall regulation, most notably coordinating on a specific percentage price increase during 1993. Since moderating price increases could have averted regulation, the coordination appears to be the industry's response to a collective action problem .