Emin M. Dinlersoz, Han Li, R. Sherman, Rubén Hernández-Murillo
In early 2004, the U.S. Government initiated the Medicare Discount Drug Card Program (MDDCP), which created a market for drug cards that allowed elderly and handicapped subscribers to obtain discounts on their prescription drug purchases. Pharmacy-level prices for many drugs were posted on the program website weekly from May 29, 2004 to December 31, 2005, as the largest undertaking in the history of government-sponsored information release began with the hope of promoting competition by facilitating access to prices. A large panel of pharmacy-level drug price data collected from the Medicare website indicates that there was significant and persistent dispersion in prices across cards throughout the program. Moreover, the time-path of prices was non-monotonic; the prices declined initially when consumers were choosing cards but rose later when subscribers were unable to switch from one card to another. In contrast, contemporaneous control prices from on-line drug retailers, which were unrelated to the program, rose steadily over time, indicating that MDDCP prices evolved in a way different from the general evolution of prices outside the program. In view of the fact that the program rules prevented consumers from changing their cards at will, the evolution of MDDCP prices is consistent with certain models of dynamic price competition with consumer switching costs, such as Klemperer’s (1987a,b). Estimates of potential savings from purchasing at program prices are also provided.
{"title":"Information and Drug Prices: Evidence from the Medicare Discount Drug Card Program","authors":"Emin M. Dinlersoz, Han Li, R. Sherman, Rubén Hernández-Murillo","doi":"10.2139/ssrn.869449","DOIUrl":"https://doi.org/10.2139/ssrn.869449","url":null,"abstract":"In early 2004, the U.S. Government initiated the Medicare Discount Drug Card Program (MDDCP), which created a market for drug cards that allowed elderly and handicapped subscribers to obtain discounts on their prescription drug purchases. Pharmacy-level prices for many drugs were posted on the program website weekly from May 29, 2004 to December 31, 2005, as the largest undertaking in the history of government-sponsored information release began with the hope of promoting competition by facilitating access to prices. A large panel of pharmacy-level drug price data collected from the Medicare website indicates that there was significant and persistent dispersion in prices across cards throughout the program. Moreover, the time-path of prices was non-monotonic; the prices declined initially when consumers were choosing cards but rose later when subscribers were unable to switch from one card to another. In contrast, contemporaneous control prices from on-line drug retailers, which were unrelated to the program, rose steadily over time, indicating that MDDCP prices evolved in a way different from the general evolution of prices outside the program. In view of the fact that the program rules prevented consumers from changing their cards at will, the evolution of MDDCP prices is consistent with certain models of dynamic price competition with consumer switching costs, such as Klemperer’s (1987a,b). Estimates of potential savings from purchasing at program prices are also provided.","PeriodicalId":306463,"journal":{"name":"LSN: Other Law & Society: Public Law - Antitrust (Topic)","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124514402","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Based on a theory of market share rebates as exclusionary, rather than share-shifting, devices, we have estimated that Medco has a rebate negotiation competitive advantage over smaller entities equal to 4.8% of all ingredient costs. That figure is an estimate of the cost to clients of switching to entities with more transparent business models. In order to offset that loss, smaller entities would have to manage formularies aggressively and produce a generic utilization rate that is 4.8 percentage points greater than Medco’s current 46.8%
{"title":"Quantifying Medco's Business Model","authors":"L. Abrams","doi":"10.2139/ssrn.2849271","DOIUrl":"https://doi.org/10.2139/ssrn.2849271","url":null,"abstract":"Based on a theory of market share rebates as exclusionary, rather than share-shifting, devices, we have estimated that Medco has a rebate negotiation competitive advantage over smaller entities equal to 4.8% of all ingredient costs. That figure is an estimate of the cost to clients of switching to entities with more transparent business models. In order to offset that loss, smaller entities would have to manage formularies aggressively and produce a generic utilization rate that is 4.8 percentage points greater than Medco’s current 46.8%","PeriodicalId":306463,"journal":{"name":"LSN: Other Law & Society: Public Law - Antitrust (Topic)","volume":"121 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-04-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123702052","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Thirteen days after America elected Donald Trump its 45th president, Margrethe Vestager, the European Commissioner for Competition, spoke on antitrust’s role in policing a dominant firm’s “excessively high prices,” which of course do not constitute an antitrust offense in the United States. Her remarks revealed the erroneous factual premise of her views on standard-essential patents (SEPs). Commissioner Vestager credulously repeats an unidentified conjecture that the cumulative royalty for SEPs used in smartphones is $120, which is at least six times greater than what reliable empirical analysis finds the amount to be. She suggests that EU competition policy is so malleable as to permit intervention even when there are no reliable empirical data that she is willing to identify publicly in support of that conjecture. Antitrust lawyers on both sides of the Atlantic should not be surprised if President Trump rejects Commissioner Vestager’s vision of competition and innovation and consequently repudiates much of what has been the Obama administration’s vision as well. The Trump administration will surely be more concerned than the Obama administration was about the harm to dynamic efficiency from using antitrust policy to suppress royalties for SEPs. Steven Salop and Carl Shapiro have speculated about two potential approaches that President Trump might take with respect to antitrust enforcement. The first would be interventionist and have “the overarching goal of reducing the power of large corporations in the American economy.” The second would be “a highly permissive, minimalist approach to antitrust (outside of price fixing enforcement) of the type associated with Robert Bork and former Supreme Court Justice Antonin Scalia.” That Salop and Shapiro cannot envision a Trump administration capable of any greater nuance than these two approaches make one wonder whether they know anybody who knows anybody who voted for Trump. It is also telling that their high-level predictions about antitrust in the Trump administration promptly drill down specifically on, of all topics, SEPs. They claim that a “laissez-faire” approach to royalties for SEPs would lead to “potentially huge amounts of money... flow[ing] from ordinary consumers purchasing smartphones... to a small number of entities... that hold SEPs relating to smartphones.” Salop and Shapiro evidently stand with Commissioner Vestager. I doubt that President Trump will. The federal government lacks a unified strategy for promoting innovation and competition and for reducing the burden of economic regulation. President Trump might consider appointing one person to oversee the formulation and implementation of that unified strategy. The Antitrust Division and the Federal Trade Commission are best equipped to focus on established product markets. The agencies understandably try to insinuate themselves in competitive disputes in markets experiencing technological disruption. But the efficacy of such interven
{"title":"How Commissioner Vestager's Mistaken Views on Standard-Essential Patents Illustrate Why President Trump Needs a Unified Policy on Antitrust and Innovation","authors":"J. Sidak","doi":"10.2139/ssrn.3178349","DOIUrl":"https://doi.org/10.2139/ssrn.3178349","url":null,"abstract":"Thirteen days after America elected Donald Trump its 45th president, Margrethe Vestager, the European Commissioner for Competition, spoke on antitrust’s role in policing a dominant firm’s “excessively high prices,” which of course do not constitute an antitrust offense in the United States. Her remarks revealed the erroneous factual premise of her views on standard-essential patents (SEPs). Commissioner Vestager credulously repeats an unidentified conjecture that the cumulative royalty for SEPs used in smartphones is $120, which is at least six times greater than what reliable empirical analysis finds the amount to be. She suggests that EU competition policy is so malleable as to permit intervention even when there are no reliable empirical data that she is willing to identify publicly in support of that conjecture. Antitrust lawyers on both sides of the Atlantic should not be surprised if President Trump rejects Commissioner Vestager’s vision of competition and innovation and consequently repudiates much of what has been the Obama administration’s vision as well. The Trump administration will surely be more concerned than the Obama administration was about the harm to dynamic efficiency from using antitrust policy to suppress royalties for SEPs. Steven Salop and Carl Shapiro have speculated about two potential approaches that President Trump might take with respect to antitrust enforcement. The first would be interventionist and have “the overarching goal of reducing the power of large corporations in the American economy.” The second would be “a highly permissive, minimalist approach to antitrust (outside of price fixing enforcement) of the type associated with Robert Bork and former Supreme Court Justice Antonin Scalia.” That Salop and Shapiro cannot envision a Trump administration capable of any greater nuance than these two approaches make one wonder whether they know anybody who knows anybody who voted for Trump. It is also telling that their high-level predictions about antitrust in the Trump administration promptly drill down specifically on, of all topics, SEPs. They claim that a “laissez-faire” approach to royalties for SEPs would lead to “potentially huge amounts of money... flow[ing] from ordinary consumers purchasing smartphones... to a small number of entities... that hold SEPs relating to smartphones.” Salop and Shapiro evidently stand with Commissioner Vestager. I doubt that President Trump will. The federal government lacks a unified strategy for promoting innovation and competition and for reducing the burden of economic regulation. President Trump might consider appointing one person to oversee the formulation and implementation of that unified strategy. The Antitrust Division and the Federal Trade Commission are best equipped to focus on established product markets. The agencies understandably try to insinuate themselves in competitive disputes in markets experiencing technological disruption. But the efficacy of such interven","PeriodicalId":306463,"journal":{"name":"LSN: Other Law & Society: Public Law - Antitrust (Topic)","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132432575","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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