This paper reflects on the evolution of China's drug distribution industry from the planned economy era to the most recent dramatic shift, with a major focus on the analysis of the government's efforts of centralizing the drug distribution channel through adoption of e‐bidding platforms. In a broader sense, the Chinese government's effort is a showcase of the so‐called “Chinese model” of implementing institutional change: the government initiates a project and counts on its fiat to gain compliance and support from the involved stakeholders. The purpose of this paper is to analyse the limitations and problems of this mode of implementing institutional change.
The analytical framework draws upon Williamson's theory of the mechanism of governance and insights from new institutional economics on institutional changes. The information used in this study is based on the authors' more than 40 interviews with a variety of pharmaceutical industry stakeholders, including government agencies, hospitals, pharmaceutical manufacturers, distributors, and electronic bidding platforms providers.
The failure of implementing third party electronic platforms based drug procurement practices shows the importance of aligning the mode of governing transactions with the macro level institutional environment and the micro level individual behavioral traits, and the government's decision of taking over the ownership of transaction platforms has further corroborated this logic.
This paper is an effort to analyze the logic behind the Chinese model of implementing institutional change: the government initiates a project and counts on its fiat to gain compliance and support from the involved stakeholders. From the academic perspective, this paper contributes to literature on the analysis of the interaction of technology adoption and institutional change.
