The reference pricing: impact in the pharmaceutical market

Increases in national pharmaceutical spending have led governments to adopt new measures aimed at promoting price competition. One such approach to regulate the pharmaceutical market is reference pricing, A reference price system categorises products into groups so that the reference price is the maximum reimbursement of the third party payer for all products in that group. Using a vertical product differentiation model, we deduce that the reference price system can generate a drug price cut, However the impact on public expenditures is uncertain.