Competition Effects of Government Subsidizing: Evidence from a Drug Access Program

• Grant number: 24/03933-2
• Support Opportunities: Scholarships in Brazil - Doctorate (Direct)
• Start date: November 01, 2024
• End date: January 31, 2027
• Field of knowledge: Applied Social Sciences - Economics - Industrial Economics
• Principal Investigator: Letícia Faria de Carvalho Nunes
• Grantee: Heitor Alves de Oliveira Lima
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil
• Associated scholarship(s): 25/01329-3 - The Effects of Health Insurance Consolidation: Evidence from a Large Merger in Brazil, BE.EP.DD

Abstract

Government subsidies in healthcare markets may improve health outcomes, but do they alter the competition dynamics between firms operating these markets? We leverage a nationwide drug access program in Brazil to answer this question, focusing on the geographical concentration of retail pharmacies. In this program, the government partners with private pharmacies to dispense subsidized prescription drugs. However, only pharmacies that meet some requirements get an accreditation to the program, and only those who can endure delays in reimbursements are able to stay accredited. Prior literature have shown that such policy causes the improvement of health indicators for some conditions, but the effects of this subsidy scheme over competition between pharmacies are still unknown. We follow Am erico and Rocha (2020) and exploit features of the subsidy program to identify its effects on market concentration. Additionally, we build upon the methodology developed in Igami and Yang (2016) to propose a dynamic entry model for the Brazilian retail pharmacy sector, and we estimate it using administrative data on pharmacies (2003-2017). We then propose two policy counterfactuals to study the evolution of concentration levels in alternative settings. The first one simulates the case in which there is no subsidy policy in this industry, while the second analyzes competition dynamics when all pharmacies are accredited to the program.