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Pricing schemes for new drugs: A welfare analysis

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  • Levaggi, Rosella

Abstract

Drug price regulation is acquiring increasing significance in the investment choices of the pharmaceutical sector. The overall objective is to determine an optimal trade-off between the incentives for innovation, consumer protection, and value for money. However, price regulation is itself a source of distortion. In this study, we examine the welfare properties of listing through a bargaining process and value-based pricing schemes. The latter are superior instruments to uncertain listing processes for maximising total welfare, but the distribution of the benefits between consumers and the industry depends on rate of rebate chosen by the regulator. However, through an appropriate choice, it is always possible to define a value-based pricing scheme with risk sharing, which both consumers and the industry prefer to an uncertain bargaining process.

Suggested Citation

  • Levaggi, Rosella, 2014. "Pricing schemes for new drugs: A welfare analysis," Social Science & Medicine, Elsevier, vol. 102(C), pages 69-73.
    • Handle: RePEc:eee:socmed:v:102:y:2014:i:c:p:69-73
    DOI: 10.1016/j.socscimed.2013.11.048
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    Cited by:

    1. Panos Kanavos & Olivier Wouters & Panos Kanavos & Alessandra Ferrario & Giovanni Tafuri & Paolo Siviero, 2017. "Managing Risk and Uncertainty in Health Technology Introduction: The Role of Managed Entry Agreements," Global Policy, London School of Economics and Political Science, vol. 8, pages 84-92, March.
    2. Sabine Vogler, 2019. "Fair prices for medicines? Exploring competent authorities’ and public payers’ preferences on pharmaceutical policies," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 46(3), pages 443-469, August.
    3. Hui Zhang & Tao Huang & Tao Yan, 2022. "A quantitative analysis of risk-sharing agreements with patient support programs for improving medication adherence," Health Care Management Science, Springer, vol. 25(2), pages 253-274, June.
    4. Joan Costa‐Font & Rosella Levaggi, 2020. "Innovation, aging, and health care: Unraveling “silver” from “red” herrings?," Health Economics, John Wiley & Sons, Ltd., vol. 29(S1), pages 3-7, October.
    5. Brekke, Kurt R. & Dalen, Dag Morten & Straume, Odd Rune, 2023. "The price of cost-effectiveness thresholds under therapeutic competition in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 90(C).
    6. Kurt R. Brekke & Dag Morten Dalen & Odd Rune Straume, 2022. "The price of cost-effectiveness thresholds," NIPE Working Papers 5/2022, NIPE - Universidade do Minho.
    7. Toon van der Gronde & Carin A Uyl-de Groot & Toine Pieters, 2017. "Addressing the challenge of high-priced prescription drugs in the era of precision medicine: A systematic review of drug life cycles, therapeutic drug markets and regulatory frameworks," PLOS ONE, Public Library of Science, vol. 12(8), pages 1-34, August.
    8. A. Carletto & A. Cicchetti & S. Coretti & V. Moramarco & M. Ruggeri, 2019. "Money back guarantee? A cost–benefit framework of performance-based agreements (PBAs) for the reimbursement of pharmaceuticals," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 9(1), pages 89-101, March.
    9. Levaggi, Laura & Levaggi, Rosella, 2024. "Competition, value-based prices and incentives to research personalised drugs," Socio-Economic Planning Sciences, Elsevier, vol. 93(C).
    10. repec:bla:glopol:v:8:y:2017:i:s2:p:84-92 is not listed on IDEAS
    11. Gregory J. Critchley & Gregory S. Zaric, 2019. "The impact of pharmaceutical marketing on market access, treatment coverage, pricing, and social welfare," Health Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 1035-1051, August.
    12. Rosella Levaggi & Paolo Pertile, 2021. "A reply to “Who would benefit from average value‐based pricing?”," Health Economics, John Wiley & Sons, Ltd., vol. 30(9), pages 2284-2286, September.
    13. Reza Mahjoub & Fredrik Ødegaard & Gregory S. Zaric, 2018. "Evaluation of a pharmaceutical risk‐sharing agreement when patients are screened for the probability of success," Health Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 15-25, January.

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