Evaluating the effects of quality regulations on the pharmaceutical supply chain

Xu Chen, Shanshan Li, Xiaojun Wang*

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

Abstract

This paper considers a two-echelon pharmaceutical supply chain comprising two pharmaceutical manufacturers and a pharmacy. We derive optimal decisions for three different supply chain power structures considering two scenarios: one scenario featuring quality regulation, and one without. By comparing the equilibriums of the two regulatory scenarios under different power structures, we then evaluate the effects of quality regulation and power structure on pharmaceutical firms’ decisions, profits and social welfare. Our results show that the product differentiation between two pharmaceutical manufacturers will be reduced through quality regulation, serving to intensify price competition between them. This has a negative impact on the two pharmaceutical manufacturers but a positive effect on the pharmacy’s profit. However, an appropriate level of minimum quality standards can enhance social welfare and the economic performance of the whole pharmaceutical supply chain, resulting in a win-win outcome. In addition, our results demonstrate that the balanced power structure has a positive effect on the pharmaceutical supply chain’s economic performance and social welfare.

Original languageEnglish
Article number 107770
Number of pages13
JournalInternational Journal of Production Economics
Volume230
Early online date6 May 2020
DOIs
Publication statusPublished - 1 Dec 2020

Keywords

  • pharmaceutical supply chain
  • quality regulation
  • market structure
  • social welfare

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