Beschreibung:
<jats:title>Abstract</jats:title>
<jats:p>Constantly rising expenditures for pharmaceuticals require government intervention in firms’ pricing decisions. To this end, reference pricing systems are a frequently employed regulatory mechanism. This paper considers a duopoly market with vertically differentiated firms highlighting the effects of a reference pricing system on prices, consumer and producer surplus, expenditures and welfare. Reference pricing decreases equilibrium prices and induces a more competitive environment. It promotes generic usage leading to increased market coverage. Especially generic consumers benefit from a reference pricing regulation. The losses in producer surplus are mainly born by the brand-name firm. Introducing a reference pricing system unambiguously increases welfare.</jats:p>