Perverse Reverse Price Competition: Average Wholesale Prices and Medicaid Pharmaceutical Spending
Abby Alpert, Mark Duggan , and Judith K. Hellerstein , ( 108 )
Journal of Public Economics

Generic drugs comprise an increasing share of total prescriptions dispensed in the U.S., rising from nearly 50% in 1999 to 75% in 2009. The generic drug market has typically been viewed at the wholesale level as a competitive market with price approaching marginal costs. However, the large presence of third party payers as final purchasers may distort prices at the retail level relative to what a standard model of price competition would predict. In this paper, we investigate how generic drug producers compete in the presence of the procurement rules of the Medicaid program.

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