Biography

Odd Rune Straume is Professor of Economics at the University of Minho in Portugal. He obtained his PhD in Economics from the University of Bergen, Norway, in 2002. He is member of the Centre for Research in Economics and Management (NIPE) at the University of Minho, Research Fellow at CESifo, Research Associate at Bergen Centre for Competition Law and Economics (BECCLE), and Editor (since 2024) of Journal of Health Economics. His main current research interests are related to competition and regulation in health care and pharmaceutical markets, but he has also done extensive research in the field of industrial organization and on topics related to globalisation and labour markets.

Abstract

We analyse the economic consequences of centralised competitive tendering in pharmaceutical markets characterised by therapeutic substitutes. Using a duopoly model with both horizontal and vertical differentiation in treatment effects, we introduce a novel mechanism—physicians’ willingness to accept treatment loss from substitution—as a policy parameter shaping market outcomes. We characterise equilibrium pricing strategies under both centralised tendering and decentralised physician choice, showing that while the latter maximises treatment benefit, tendering can reduce expected costs when substitution thresholds are sufficiently high. We also demonstrate that quality asymmetries and captive patient segments amplify pricing distortions under tendering. The results highlight key trade-offs between efficiency and cost containment in the procurement of patent-protected pharmaceuticals..

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