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The European Journal of Health Economics

Published in:

01-06-2014 | Original Paper

The effects of rebate contracts on the health care system

Author: Julia Graf

Published in: The European Journal of Health Economics | Issue 5/2014

Abstract

Group purchasing organizations gain increasing importance with respect to the supply of pharmaceutical products and frequently use multiple, exclusive or partially exclusive rebate contracts to exercise market power. Based on a Hotelling model of horizontal and vertical product differentiation, we examine the controversy around whether a superior rebate scheme exists, as far as consumer surplus, firms’ profits and total welfare are concerned. We find that firms clearly prefer partially exclusive over multiple, and multiple over exclusive rebate contracts. In contrast, no rebate form exists that lowers total costs per se for the consumers or maximizes total welfare.

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We assume identical linear production costs. All the results we present are robust to a change in production costs as long as both firms’ production cost functions are identical, which is likely in the health care context.

Proof can be found in the “Appendix”.

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Title: The effects of rebate contracts on the health care system
Author: Julia Graf
Publication date: 01-06-2014
Publisher: Springer Berlin Heidelberg
Published in: The European Journal of Health Economics / Issue 5/2014
Print ISSN: 1618-7598
Electronic ISSN: 1618-7601
DOI: https://doi.org/10.1007/s10198-013-0488-x

Keynote webinar | Spotlight on medication adherence

Springer Medicine

The effects of rebate contracts on the health care system

Abstract

Keynote webinar | Spotlight on medication adherence

Springer Medicine

Abstract

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