Feb 24, 2012

What Do Drug Monopolies Cost Consumers in Developing Countries?

From an interesting new paper by Rebecca Hellerstein
I find that markups are 50 cents higher per capsule in monopolistic than in competitive countries — compared to an average price of about 65 cents per capsule — after conditioning on cross-country variation in consumers’ purchasing power.
Countries like Brazil or India have competitive markets, and many African countries have monopolistic markets. Brazil and India have higher levels of GDP per capita than African countries. There are two forces at work then. For example, Brazil and India have more competitive markets but their inhabitants can pay higher prices because their purchasing power is relatively higher. In Africa the market is monopolistic but the inhabitants have a lower GDP per capita (a lower purchasing power). The 50 cents difference in markups results after controlling for the variations in GDP per capita [excuse my over-explanation].   

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