American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Competitive Bidding in Drug Procurement: Evidence from China
American Economic Journal: Economic Policy
vol. 16,
no. 3, August 2024
(pp. 481–513)
Abstract
We study the equilibrium effects of introducing competitive bidding in drug procurement. In 2019, China introduced a competitive bidding program where drug companies bid for a prespecified procurement quantity in nine provinces. Using a difference-in-differences design, we show the program reduced average drug prices by 47.4 percent. Generic drugs won most bids and cut prices by 75.0 percent. We develop an equilibrium model to quantify the trade-off between lower prices and potential choice distortions. Competitive bidding increases consumer welfare if policymakers believe consumers should value branded and bioequivalent generic drugs equally. The program also reduced government expenditure on insurance by 19.8 percent.Citation
Cao, Shengmao, Lisa Xuejie Yi, and Chuan Yu. 2024. "Competitive Bidding in Drug Procurement: Evidence from China." American Economic Journal: Economic Policy, 16 (3): 481–513. DOI: 10.1257/pol.20220505Additional Materials
JEL Classification
- D44 Auctions
- G22 Insurance; Insurance Companies; Actuarial Studies
- I18 Health: Government Policy; Regulation; Public Health
- L13 Oligopoly and Other Imperfect Markets
- L65 Chemicals; Plastics; Rubber; Drugs; Biotechnology
- P25 Socialist Systems and Transitional Economies: Urban, Rural, and Regional Economics
- P31 Socialist Enterprises and Their Transitions
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