Pricing Problems in the Pharmaceutical Supply Chain with Mixed Channel: A Power Perspective

Abstract

This paper builds Pharmaceutical Manufacturer Stackelberg, Pharmacy Stackelberg and Nash game models with and without price cap regulation. The optimal pricing, performance and social welfare are derived and compared in three different power structures to find out how price cap regulation and power structures affect the drug supply chain. More power over other supply chain members always allows the pharmaceutical manufacturer to obtain more profits. However, the pharmacy cannot always benefit from its dominant position in the market with changes in the wholesale price cap. Additionally, the balanced market structure may harm social welfare under certain conditions. Another interesting finding is that the restricted wholesale price cap deeply affects the financial performance and social welfare in the manufacturer-dominated and pharmacy-dominated markets. The research results can provide important management insights, which will be beneficial to the government to design smart price-limiting policies that take into account the power relationships of the supply chain.

What condition leads to an unreasonable pharmaceutical price? Impact research on the effect of medical service provision on pharmaceutical price regulation based on fuss-set QCA

“…The detailed mechanism offers further theoretical contributions in the studies of regulation on pharmaceutical prices. According to a previous study of regulation on pharmaceutical prices, few studies revealed the factors leading to unreasonable pharmaceutical prices from the perspective of medical service provision [ 7 , 10 , 16 , 35 ]. This study explores this detailed impact mechanism, which offers several contributions to the regulation of pharmaceutical prices.…”

“…Thus, regulation is designed to overcome market failures and thereby redirect the market to a state of Pareto equilibrium. When it comes to the pharmaceutical market, according to prior studies, this market is a main object of regulation [ 7 , 10 ]. The first reason for this is that the market for medical services has strict positive externalities.…”

“…Plenty of research has focused on its pricing strategy and service affordability [ 2 , 13 , 19 ]. For example, Yang et al have explored the relationship between pharmaceutical prices and the supply chain [ 7 ]. Not only that, Yip and Hsiao discussed that the medical system in China has been trapped in a dilemma due to the policymakers [ 20 ].…”

Towards Sustainable Drug Supply in China: A Bibliometric Analysis of Drug Reform Policies

“…For example, to ensure sustainable supply and reduce prices [4,5], China has widely implemented centralized procurement at the provincial level since 2009 [6]. Nevertheless, this policy subsequently raised concerns about the quality of Chinese generic drugs and the problem of shortages of procured drugs with low levels of cost or consumption [7,8], which led to the introduction of policies on generic drug consistency evaluation and volume-based centralized procurement [9,10]. In order to tackle the problem of high drug prices, China has gradually abolished markup charging of drugs in public hospitals since 2009, compensating hospitals' income loss from drug sales through government subsidies.…”