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Pricing above value: Selling to a market with selection problems

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  • Boone, Jan

Abstract

This paper shows that selection incentives in downstream markets distort upstream prices. It is possible for inputs to be priced above the value that the good has for final consumers. We apply this idea to pharmaceutical companies selling drugs to a health insurance market with selection problems. We specify the conditions under which drugs are sold at prices exceeding treatment value. Another feature of the model is an excessive private incentive to reduce market size, e.g. in the form of personalized medicine.

Suggested Citation

  • Boone, Jan, 2024. "Pricing above value: Selling to a market with selection problems," Journal of Health Economics, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:jhecon:v:94:y:2024:i:c:s0167629624000134
    DOI: 10.1016/j.jhealeco.2024.102868
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    More about this item

    Keywords

    Selection; Pricing above value; Vertical relations; Pharmaceutical prices;
    All these keywords.

    JEL classification:

    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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