IDEAS home Printed from https://ideas.repec.org/p/liu/liucec/170.html
   My bibliography  Save this paper

Reconciling social and industrial goals: a bargaining model to pricing pharmaceuticals

Author

Listed:

Abstract

The issues at stake for determining the price of a drug are related to finding an "equitable" trade-off between the legitimate need for the pharmaceutical industry to make a profit and full exploitation of the consumer’s surplus in a market with asymmetry of information. This paper develops a bargaining process where the regulator sets the price of drug in order to maximise the society’s net benefit while the pharmaceutical industry maximises its profit. The resulting price is a weighted average of willingness to pay and cost of the new drug. The weights are represented by the relative strength of the two actors which we show to depend on the importance of the drug for society (other alternatives on the market, the degree of innovation and effectiveness), and on the sustainability of the threat by the pharmaceutical industry to sell the drug only on the private market (medicaments not reimbursed by public healthcare system). Our proposed method allows to set the price of new drugs in different market contexts, i.e. where less effective alternatives are already sold or in new therapeutic areas. Keywords: Pharmaceutical Industry, Regulation, Health Care

Suggested Citation

  • Stefano Capri & Rosella Levaggi, 2005. "Reconciling social and industrial goals: a bargaining model to pricing pharmaceuticals," LIUC Papers in Economics 170, Cattaneo University (LIUC).
    • Handle: RePEc:liu:liucec:170
    as

    Download full text from publisher

    File URL: https://biblio.liuc.it/liucpap/pdf/170.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Izabela Jelovac, 2015. "On the relationship between the negotiated prices of pharmaceuticals and the patients' co-payment," Economics Bulletin, AccessEcon, vol. 35(1), pages 481-493.
    2. Ernst R. Berndt, 2002. "Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 45-66, Fall.
    3. Danzon, Patricia M. & Chao, Li-Wei, 2000. "Cross-national price differences for pharmaceuticals: how large, and why?," Journal of Health Economics, Elsevier, vol. 19(2), pages 159-195, March.
    4. Wright, Donald J., 2004. "The drug bargaining game: pharmaceutical regulation in Australia," Journal of Health Economics, Elsevier, vol. 23(4), pages 785-813, July.
    5. Danzon, Patricia M & Chao, Li-Wei, 2000. "Does Regulation Drive out Competition in Pharmaceutical Markets?," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 311-357, October.
    6. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Patricia M. Danzon & Eric L. Keuffel, 2014. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484, National Bureau of Economic Research, Inc.
    2. Verniers, Isabel & Stremersch, Stefan & Croux, Christophe, 2011. "The global entry of new pharmaceuticals: A joint investigation of launch window and price," International Journal of Research in Marketing, Elsevier, vol. 28(4), pages 295-308.
    3. Königbauer, Ingrid, 2006. "Dealing with Rising Health Care Costs: The Case of Pharmaceuticals," Munich Dissertations in Economics 5640, University of Munich, Department of Economics.
    4. Ernst R. Berndt & Joseph P. Newhouse, 2010. "Pricing and Reimbursement in U.S. Pharmaceutical Markets," NBER Working Papers 16297, National Bureau of Economic Research, Inc.
    5. Patricia M. Danzon & Andrew W. Mulcahy & Adrian K. Towse, 2015. "Pharmaceutical Pricing in Emerging Markets: Effects of Income, Competition, and Procurement," Health Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 238-252, February.
    6. repec:dau:papers:123456789/5987 is not listed on IDEAS
    7. Lee Branstetter & Chirantan Chatterjee & Matthew J. Higgins, 2016. "Regulation and welfare: evidence from paragraph IV generic entry in the pharmaceutical industry," RAND Journal of Economics, RAND Corporation, vol. 47(4), pages 857-890, November.
    8. Stephan Eger & Jörg Mahlich, 2014. "Pharmaceutical regulation in Europe and its impact on corporate R&D," Health Economics Review, Springer, vol. 4(1), pages 1-9, December.
    9. Bate, Roger & Jin, Ginger Zhe & Mathur, Aparna, 2011. "Does price reveal poor-quality drugs? Evidence from 17 countries," Journal of Health Economics, Elsevier, vol. 30(6), pages 1150-1163.
    10. Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2011. "External referencing and pharmaceutical price negotiation," Health Economics, John Wiley & Sons, Ltd., vol. 20(6), pages 737-756, June.
    11. Vincenzo Atella & Jay Bhattacharya & Lorenzo Carbonari, 2008. "Pharmaceutical Industry, Drug Quality and Regulation: Evidence from US and Italy," NBER Working Papers 14567, National Bureau of Economic Research, Inc.
    12. Joan Costa-i-Font & Alistair McGuire & Nebibe Varol, 2011. "Does Pharmaceutical Price Regulation Affect the Adoption of Generic Competition? Evidence from the OECD, 1999-2008," CESifo Working Paper Series 3441, CESifo.
    13. Paraponaris, A. & Verger, P. & Desquins, B. & Villani, P. & Bouvenot, G. & Rochaix, L. & Gourheux, J. C. & Moatti, J. P. AU -, 2004. "Delivering generics without regulatory incentives?: Empirical evidence from French general practitioners about willingness to prescribe international non-proprietary names," Health Policy, Elsevier, vol. 70(1), pages 23-32, October.
    14. Ammas Siraj Mohammed & Nigist Alemayehu Woldekidan & Fuad Adem Mohammed, 2020. "Knowledge, attitude, and practice of pharmacy professionals on generic medicines in Eastern Ethiopia: A cross-sectional study," PLOS ONE, Public Library of Science, vol. 15(7), pages 1-12, July.
    15. Comisión Nacional de los Mercados y la Competencia (CNMC), 2022. "Estudio sobre el mercado de distribución mayorista de medicamentos," Colección Estudios de Mercado E/CNMC/002/17, Comisión Nacional de los Mercados y la Competencia (CNMC).
    16. Sean M. Dougherty & Robert Inklaar & Robert H. McGuckin & Bart van Ark, 2007. "International Comparisons of R&D Expenditure: Does an R&D PPP Make a Difference?," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 291-322, National Bureau of Economic Research, Inc.
    17. Fernando Antoñanzas & Carmelo Juárez-Castelló & Roberto Rodríguez-Ibeas, 2011. "Innovation, loyalty and generic competition in pharmaceutical markets," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 2(1), pages 75-95, March.
    18. Vicente Ortún, 2004. "Patentes, regulación de precios e innovación en la industria farmacéutica," Economics Working Papers 754, Department of Economics and Business, Universitat Pompeu Fabra.
    19. Antonio Cabrales & Sergi Jiménez‐Martín, 2013. "The Determinants Of Pricing In Pharmaceuticals: Are Us Prices Really So High?," Health Economics, John Wiley & Sons, Ltd., vol. 22(11), pages 1377-1397, November.
    20. Wright, Donald J., 2004. "The drug bargaining game: pharmaceutical regulation in Australia," Journal of Health Economics, Elsevier, vol. 23(4), pages 785-813, July.
    21. Magazzini Laura & Fabio Pammolli & Massimo Riccaboni, 2013. "R&D, Within and Between Patent Competition in the Pharmaceutical Industry," Working Papers 3/2013, IMT School for Advanced Studies Lucca, revised Jul 2013.

    More about this item

    Keywords

    pharmaceutical industry; regulation; health care;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:liu:liucec:170. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Laura Ballestra (email available below). General contact details of provider: https://edirc.repec.org/data/liuccit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.