Medicine Shortages in Finland – Examing the Role of Competition and Firm Decision
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School of Business |
Bachelor's thesis
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Authors
Date
2022
Department
Major/Subject
Mcode
Degree programme
Taloustiede
Language
fi
Pages
24+3
Series
Abstract
Medicine shortages have become common in the 2000s and they can cause delays in patient care, require patients to seek alternative treatments, and hike up pharmaceutical costs. Currently, pharmaceutical manufacturers are not required to disclose reasons behind shortages thus creating a need for research. There does not yet exist a large literature on the subject. Especially economic literature on markets similar to the Finnish market is limited. This thesis sheds light on drug shortages and how competition and firm decisions can contribute to shortages in the Finnish market. The key findings are that monopoly markets are less likely to experience shortages, but the causal link is difficult to determine decisively. Moreover, the market and shortages as a phenomenon are extremely complex and the consensus is that a multitude of reasons lie behind most cases of shortages. I discuss potent theoretical models and show that currently an apt model for predicting shortages in the Finnish market does not exist. Although, these models still give insight into firm behavior. I find that firms maximize expected profits and in a small, far-away market such with price rigidity such as the Finnish market, shortages are of nature according to theory. Literature from the pharmaceutical field suggests that the small market size, low profitability, and regulation in Finland have influenced firms' decisions. Also, reimbursement and patent expiration have a part in the matter. My empirical analysis proposes that monopoly status and the number of firms affect the likelihood of a shortage occurring. However, low prices and market size do not provide significant results. Finally, I suggest that policies aiming to prevent shortages must take into account the following. The welfare effects of shortages vary and thus a uniform solution is likely suboptimal. For critical medicine needed at short notice, literature suggests that authorities could pay subsidies to producers to ensure availability. However, for less critical products, the cost of subsidization can surpass the welfare cost of shortages and therefore reduce total welfare. The best solution does not necessarily include zero shortages.Description
Thesis advisor
Murto, PauliKeywords
pharmaceutical markets, medicine shortages, competition, firm decisions