Abstract
Pharmaceutical supply chains are often highly complex with conflicting objectives of social welfare and profit maximization. Furthermore, there are various stakeholders including pharmaceutical manufacturer, distributors, retailers, patients, and the government. In this paper, we consider a two-stage supply chain consisting of one pharmaceutical manufacturer and a pharmacy with online and offline channels. We focus on four price cap models: no price cap regulation, pharmaceutical manufacturer’s price cap regulation, pharmacy price cap regulation, and linkage price cap regulation. We apply game theory, investigate how the price cap regulations affect the firms’ pricing, and evaluate the economic performance and social welfare of the dual-channel pharmaceutical supply chain. Our findings show that first, like the single-channel pharmaceutical supply chain, the profit of the regulated firm always decreases and the profit of the unregulated firm always increases when they are under one-sided price cap regulations. Second, the impacts of the linkage price cap regulation on the supply chain are more complicated depending on the linkage coefficient and market share. Overall, our findings can provide theoretical and practical insights to help the government devise price cap regulations for complex modern pharmaceutical supply chains.
Highlights
Human health affects individual employment and survival and largely determines a country’s economic growth and prosperity by the United Nations [1]
Our research aims to fulfill this gap through addressing the following key questions: what is the best strategy for a pharmaceutical supply chain under price cap regulations? What are the impacts of the price caps on pricing decisions, profits, and social welfare? How does market competition affect a pharmaceutical online-to-offline (O2O) supply chain?
Research is paper investigates a two-echelon pharmaceutical supply chain consisting of one pharmaceutical manufacturer and one pharmacy with online and offline channels
Summary
Human health affects individual employment and survival and largely determines a country’s economic growth and prosperity by the United Nations [1]. In order to prevent the pharmaceutical supply chain led by medical institutions from chasing high drug profits, the government has adopted price cap regulations. Erefore, under the government’s control of public hospital bidding and procurement and the control of drug prices in social pharmacies, it is important to consider how drug retailers choose channel sales, how to accurately target consumers, and how to ensure their own profits. In the context of the dual-channel pharmaceutical supply chain, it has become the focus of social concern whether the price-fixing policy can continue to control drug prices and whether the public welfare of medical institutions can ensure social welfare. We derive the optimal pricing strategies for the pharmaceutical O2O supply chain that operates both online and offline channels to consumers, and investigate the impacts of three price cap regulations.
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