Abstract
This contribution estimates the price-cost margin in the Finnish pharmaceutical industry. The estimation is based on the method developed by Hall who shows that under constant returns to scale total factor productivity growth depends on the growth of output-capital ratio if the market is imperfectly competitive. Measurement of the price-cost margin is based on this theoretical result. We utilize data on the Finnish pharmaceutical industry. The data cover the years 1975–1999 and include information on output, labor hours, and capital stock. The results show that the estimated price-cost margin is in the range 0.59–0.67, which is close to the estimates obtained in the United States market.
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Acknowledgements
The authors thank Tarmo Räty and participants of the Econometrics Workshop in the Nordic Health Economics Study Group Meeting in Helsinki, August 2002, and participants of the iHEA World Congress in San Francisco, June 2003, for helpful comments. Financial support from TEKES (the National Technology Agency) and Finnish Cultural Foundation is gratefully acknowledged.
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Linnosmaa, I., Hermans, R. & Hallinen, T. Price-cost margin in the pharmaceutical industry. HEPAC 5, 122–128 (2004). https://doi.org/10.1007/s10198-003-0212-3
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DOI: https://doi.org/10.1007/s10198-003-0212-3