Non-Cooperative Pricing Decisions in Single Pharmacy-Hospital Pharmaceutical Supply Chains under Compulsory Stockpiling Mechanism

This paper constructs a game theoretical pricing model featuring a solitary supplier, pharmacy and hospital, with the latter implementing a compulsory stockpiling mechanism. Both retailers offer a single drug type and engage in pricing competition. Benefitting from government discounts during drug procurement, the hospital is required to replenish from a reserve warehouse when demand exceeds supply. Our model confirms the existence and uniqueness of a Nash equilibrium, furnishing closed-form solutions under the assumption of exponential demand. Our analysis uncovers that high price sensitivity, diminished reliability, limited discounts, and elevated wholesale prices are significant drivers of drug shortages. However, implementation of compulsory stockpiling mechanisms may alleviate such shortages in hospitals without necessarily escalating drug prices.