Pricing Problems in the Pharmaceutical Supply Chain with Mixed Channel: A Power Perspective

Abstract

This paper builds Pharmaceutical Manufacturer Stackelberg, Pharmacy Stackelberg and Nash game models with and without price cap regulation. The optimal pricing, performance and social welfare are derived and compared in three different power structures to find out how price cap regulation and power structures affect the drug supply chain. More power over other supply chain members always allows the pharmaceutical manufacturer to obtain more profits. However, the pharmacy cannot always benefit from its dominant position in the market with changes in the wholesale price cap. Additionally, the balanced market structure may harm social welfare under certain conditions. Another interesting finding is that the restricted wholesale price cap deeply affects the financial performance and social welfare in the manufacturer-dominated and pharmacy-dominated markets. The research results can provide important management insights, which will be beneficial to the government to design smart price-limiting policies that take into account the power relationships of the supply chain.

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