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Down to the cents: The case of international drug prices

Author

Listed:
  • Hu, Bill
  • Hwang, Joon Ho
  • Jiang, Christine
  • Washam, Jim
  • Zeng, Li

Abstract

Using drug prices from the Veteran Affairs office, we document limited clustering on whole dollars and heightened strategic pricing. Surprisingly 97.9% of drugs over $10,000 are priced down to the cents. We find no significant variations in clustering by price levels or uncertainty, rejecting the negotiation hypothesis. Strategic pricing on 01 and 99 increases monotonically as prices decline. For international drug prices, we find significant clustering on integers in Luxembourg and South Africa as price level increases, supporting the negotiation hypothesis. Our findings contribute to better negotiating drug prices to reduce healthcare costs while not discouraging innovations in drug development.

Suggested Citation

  • Hu, Bill & Hwang, Joon Ho & Jiang, Christine & Washam, Jim & Zeng, Li, 2022. "Down to the cents: The case of international drug prices," Finance Research Letters, Elsevier, vol. 46(PA).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pa:s1544612321003615
    DOI: 10.1016/j.frl.2021.102357
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    References listed on IDEAS

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    1. Qin, Meng & Su, Ai-Hsuan & Li, Ruifeng & Su, Chi-Wei, 2024. "Speculation, climate or pandemic: Who drives the Chinese herbal medicine bubbles?," China Economic Review, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Price clustering; Negotiation; Strategic pricing; Uncertainty; International drug prices;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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