con GIOVANNI RIGHETTI
Postdoctoral Fellow at the Nova School of Business and Economics, Portugal

Many countries use external reference pricing (ERP), linking domestic drug prices to foreign benchmarks. We show theoretically that strategic firm responses to ERP can create cross-country spillovers with unintended consequences. Exploiting the introduction of ERP in Germany in 2011 in a difference-in-differences design, we find that this policy caused a 6.6% price increase in reference countries relative to non-reference markets. Results are robust across specifications, including an approach that accounts for confidential discounts.