American Economic Review Vol. 114 No. 3 2024

The Economics of the Public Option: Evidence from Local Pharmaceutical Markets

Juan Pablo Atal¹; José Ignacio Cuesta²; Felipe González³; Cristóbal Otero⁴

¹ University of Pennsylvania (email: ) · ² Stanford University and NBER (email: ) · ³ Queen Mary University of London (email: ) · ⁴ Columbia Business School (email: )

Abstract

We study the effects of competition by state-owned firms, leveraging the decentralized entry of public pharmacies to local markets in Chile. Public pharmacies sell the same drugs at a third of private pharmacy prices, because of stronger upstream bargaining and market power in the private sector, but are of lower quality. Public pharmacies induced market segmentation and price increases in the private sector, which benefited the switchers to the public option but harmed the stayers. The countrywide entry of public pharmacies would reduce yearly consumer drug expenditure by 1.6 percent.

DOI

10.1257/aer.20211547

Volume

114

Issue

3

Pages

615-644

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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