Price Discrimination and Bargaining: Empirical Evidence from Medical Devices

Posted by D. Daniel Sokol

Matthew Grennan, University of Toronto - Joseph L. Rotman School of Management analyze Price Discrimination and Bargaining: Empirical Evidence from Medical Devices.

ABSTRACT: Many important issues in business-to-business markets involve price discrimination and negotiated prices, situations where theoretical predictions are ambiguous. This paper uses new panel data on buyer-supplier transfers and a structural model to empirically analyze bargaining and price discrimination in a medical device market. While many phenomena that restrict price discrimination are suggested as ways to decrease hospital costs (e.g., mergers, group purchasing organizations, and transparency), I find that: (1) non-discriminatory pricing actually works against hospitals because competition is more intense under price discrimination; and (2) results depend ultimately on a previously unexplored "bargaining effect".