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Hermans, Raine
Linnosmaa, Ismo
Year of Publication: 
Series/Report no.: 
ETLA Discussion Papers, The Research Institute of the Finnish Economy (ETLA) 877
The aim of this paper is to compare the price-cost margins in the pharmaceutical industry in Finland and USA. We employ data on the Finnish and the US pharmaceutical industry. The estimation is theoretically based on a modification of the conventional growth models and its extensions under imperfectly competitive markets. The results show that the estimated price-cost margin is 0.60-0.67 in Finland and 0.51-0.67 in the US with demand driven instruments and lagged R&D expenditure related instrument. When R&D stock is estimated and included as oneproduction input in the model, the price-cost margin drops to 0.43-0.55 in Finland and 0.40-0.58 in the US. Therefore, differences in regulatory environments have not altered the price-cost margins in the pharmaceutical industry within these countries. Either this is due to the inefficient regulation system in Finland or it is due to the differences between market structures and competitive environment. – competition ; markup ; pharmaceuticals ; price regulation ; R&D
Document Type: 
Working Paper

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