The European Journal of Health Economics

, Volume 15, Issue 5, pp 477–487 | Cite as

The effects of rebate contracts on the health care system

  • Julia GrafEmail author
Original Paper


Group purchasing organizations gain increasing importance with respect to the supply of pharmaceutical products and frequently use multiple, exclusive or partially exclusive rebate contracts to exercise market power. Based on a Hotelling model of horizontal and vertical product differentiation, we examine the controversy around whether a superior rebate scheme exists, as far as consumer surplus, firms’ profits and total welfare are concerned. We find that firms clearly prefer partially exclusive over multiple, and multiple over exclusive rebate contracts. In contrast, no rebate form exists that lowers total costs per se for the consumers or maximizes total welfare.


GPOs Rebate contracts Vertical differentiation 

JEL Classification

I11 L13 L42 



I am very grateful to Christian Wey, Jürgen Zerth, Clémence Christin, Irina Suleymanova and the participants in the DIBOGS seminar 2011 as well as to two anonymous referees for many helpful comments and suggestions.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Düsseldorf Institute for Competition Economics (DICE)Heinrich-Heine-Universität DüsseldorfDüsseldorfGermany

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