The pharmaceutical industry offers the world's population alleviation and cure from a variety of medical conditions, while also contributing to the economic performance of many countries. A larger population is, thus, necessary for generating sales required to cover entry costs.Footnote 1 Thus, the key data required for applying the BresnahanReiss (entry-threshold) approach are both minimal and commonly available: market structure (i.e., the number of firms) and population in several local markets. Schaumans and Verboven adapt the models of Bresnahan and Reiss [2] and Mazzeo [13] to allow for entry restrictions for pharmacies as well as the fact that products sold by the two types of firms (pharmacies and physicians) may be strategic complements. (2013). Abstract. While this might be a plausible assumption in some sparsely populated (rural) regions,Footnote 2 the high population density in many European countries raises doubts concerning the assumption of perfectly isolated regional markets. With this in mind, we constrain \(\alpha\) by dividing all parameters by the estimated value of the population coefficient in order to calculate the break-even population: Changes in competitive pressure due to entry are measured by the ordered probit parameters \(\theta _N\). The seminal model It was prepared by national experts in collaboration with the European Observatory on Health Systems and Policies. The predicted entry behaviour based on parameter estimates from the period of self-regulation (2001) and the liberalization thereafter (2010) is summarised in Table11. We take this into account by following Schaumans and Verboven [12] and estimating a standard censored ordered probit. The pharmaceutical industry, or pharma industry, is one of the fastest-growing economic sectors with worldwide sales of more than $1,228.45 billion in 2020. The potential importance of these characteristics have made the industry an area of intense debate, criticism an . Google Scholar, Dionne, G., Langlois, A., Lemire, N.: More on the geographical distribution of physicians. theories behind it. \end{aligned}$$, $$\begin{aligned}&y^* \sim TMVN(\mu ,\varOmega )\\&\mu =(I-\rho W)^{-1}(X\beta +\ln S)\\&\varOmega =[(I-\rho W)'(I-\rho W)]^{-1}. MISR [20] and SOSR [21] provide additional information regarding the rationale behind these changes. They also make use of the fact that the number of specialists in the U.S. increased dramatically over the decade of the 1970s. As mentioned in Rosenthal et al. public. For these observations, the likelihood function remains unchanged. Vol. A comprehensive survey of this literature is available in Gaynor and Town [6]. University of St Andrews is a charity registered in Scotland, No SC013532. The more lenient approach to the formation of distribution chains may have allowed firms to reduce operation costs. Table 7 shows the transition probabilities across market structures. Technical report, Slovak Chamber of Pharmacists (2000), PMU SR: Decision of the Antimonopoly Office of the Slovak Republic 2001/PO/4/1/271. RAND J. Econ. These results can be found in the Appendix. The other form of oligopoly is the differentiated oligopolistic market structure found in the pharmaceutical industry. In the empirical analysis, we follow previous research and set \(N^m = 7\) in order to have sufficient observations to identify each threshold. Pharmacies and physician practices provide complementary services. shows that such endogenous sunk costs do play a crucial role in the formation of market structure in the global pharmaceutical industry. This allows you to go through the documents and request any revision, corrections, or polishing before the paper is due. Health Syst. [8] revisit this issue using data from the 1980s and 1990s. We estimate market-size thresholds required to support different numbers of suppliers (firms) for three occupations in the healthcare industry in a large number of distinct geographic markets in Slovakia, taking into account the spatial interaction between local markets. \end{aligned}$$, $$\begin{aligned} y=N \quad \text{if } \theta _N< y^*< \theta _{N+1} \end{aligned}$$, $$\begin{aligned} y^*=\rho Wy^*+X\beta + \ln S + \varepsilon ,\quad \text{where }\varepsilon \sim N(0,\sigma ^2 I). Spatial spillover effects between different regions might be particularly important for healthcare industries, since the costs of travelling are small relative to the value of the service. Technology, regulation, and market structure in the modern pharmaceutical industry Peter Temin* This paper describes the transformation of the American pharmaceutical industry into its modern configuration in the 1950s. The effects of such an intervention are limited in markets with low predicted profitability. PMC Observations below the diagonal indicate that more firms would be expected to enter in 2010 than in the comparison period. This would indicate that healthcare providers in more concentrated markets have higher markups, either due to smaller investments in quality or due to stronger government subsidization. This profitability (denoted by \(Wy^*\)) may rise due to two counteracting reasons: (1) if market characteristics improve (in other words \(\mu\) grows) or (2) if more firms have entered the market (since \(y^*_N