The Determinants of Negotiated Pharmaceutical Prices

We focus on the determinants of pharmaceutical drug prices. Using data from the Brazilian pharmaceutical market, we find large variations in drug prices across buyers, drug classes, and time periods. Our estimation results provide evidence that transaction‐specific determinants between buyers and sellers (e.g., transaction volume, buyer's loyalty, multiple drug purchases from the same seller) exert strong effects on drug prices. Our counterfactuals show that group purchasing organizations achieve price reductions that vary across drug classes and that these price reductions primarily depend on buyer price sensitivity.