Cartels, spontaneous price discrimination and international pharmacy retailing

26 July 2012
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This Occasional Paper examines the nature of pharmacy retail distribution in several different countries. Evidence in the market-place supports the view that innovations in distribution technology are or could be plentiful; conversely, because of institutional rigidities bolstered by law, retail pharmacists in many countries are successfully participating in a cartel-like environment where those innovations are retarded. The outcome is often perverse. Retailers do not achieve economies of scale (a common argument in favour of cartels), while consumers do not experience the lower prices resulting from inter-firm rivalry (a common argument in favour of diffuse ownership).

• Price discrimination by manufacturers has been used to gain access to additional and novel distribution channels – health maintenance organisation, dispensing doctors, direct mail distribution, preferred provider pharmacies, etc. – and these expansion modes have been used to a greater extent than they would have been had conventional community pharmacists not been prohibited from expanding because of the regulatory ban on corporate ownership.

• Price discrimination has resulted in the newer modes of distribution demanding discounts, and both the new and the older modes of distribution passing discounts on to reimbursers and patients.

• Price discrimination has encouraged the adjustment of the retail pharmacy profession to changing circumstances.

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