Effects of price regulation and bargaining on pharmaceutical supply chain considering the pharmacy's sales effort

The characteristics of Internet such as openness and sharing have affected the cooperation and competition between firms in pharmaceutical industry. Considering the pharmacy's sales effort to improve competitiveness, this paper built three models for a two-echelon pharmaceutical supply chain: without regulation (NRNB) model, price cap regulation without bargaining (PRNB) model and price cap regulation with bargaining (PRB) model where the pharmaceutical manufacturer and pharmacy cooperate and bargain on the wholesale price. Based on the optimal pricing and sales effort decisions, the effects of price cap regulation and bargaining on the supply chain and social welfare are explored. The results indicate that the pharmaceutical supply chain, pharmacy and total social welfare will be worse off in the PRNB model. However, in the PRB model, all the pharmaceutical supply chain and firms can be better off, and Pareto improvement is achieved under certain conditions. Moreover, social welfare can also increase in the Pareto zone.