The strategic response by pharmaceutical firms to the Medicaid most-favored-customer rules

In 1991 a most-favored-customer (MFC) rule was adopted to govern pharmaceutical prices paid by Medicaid. Theoretical models show that an MFC rule commits a firm to compete less aggressively in prices, I find that the price of branded products facing generic competition rose (4% on average). Brands protected by patents did not significantly increase in price, Generics in concentrated markets should display a strategic response to the brand's adoption of the MFC; I find that generic firms raise price more as their markets become concentrated, Hospital prices show little; change, The results suggest that the MFC rule caused higher prices for some pharmaceutical consumers.