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Monopoly Pricing of an Antibiotic Subject to Bacterial Resistance

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  • Markus Herrmann

Abstract

We develop a dynamic bio-economic model of bacterial resistance and disease transmission in which we characterize the pricing policy of a monopolist who is protected by a patent. After expiration, the monopolist behaves competitively in a generic industry having open access to the common pool of antibiotic efficacy and infection. The monopolist manages endogenously the levels of antibiotic efficacy as well as the infected population, which represent quality and market size respectively and achieves, at least temporarily, higher such levels than a hypothetically myopic monopolist who does not take into account the dynamic externalities. The pricing policy and the biological system are characterized by the turnpike property. Before the patent vanishes, the monopolist behaves more and more myopically, leading to a continuous decrease in the price of the antibiotic. Once the generic industry takes over, a discontinuous fall in price occurs. Whether a prolongation of the patent is socially desirable depends on the relative levels of antibiotic efficacy and infection.

Suggested Citation

  • Markus Herrmann, 2009. "Monopoly Pricing of an Antibiotic Subject to Bacterial Resistance," Cahiers de recherche 0946, CIRPEE.
    • Handle: RePEc:lvl:lacicr:0946
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    References listed on IDEAS

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    Cited by:

    1. Klaus Kaier & S. Moog, 2012. "Economic Consequences of the Demography of MRSA Patients and the Impact of Broad-Spectrum Antimicrobials," Applied Health Economics and Health Policy, Springer, vol. 10(4), pages 227-234, July.
    2. Eswaran, Mukesh & Gallini, Nancy, 2016. "Rescuing the Golden Age of Antibiotics: Can Economics Help Avert the Looming Crisis?," Economics working papers nancy_gallini-2016-9, Vancouver School of Economics, revised 04 Jul 2016.
    3. Herrmann, Markus & Nkuiya, Bruno & Dussault, Anne-Renée, 2013. "Innovation and antibiotic use within antibiotic classes: Market incentives and economic instruments," Resource and Energy Economics, Elsevier, vol. 35(4), pages 582-598.
    4. Belay, Dagim G. & Jensen, Jørgen D., 2020. "‘The scarlet letters’: Information disclosure and self-regulation: Evidence from antibiotic use in Denmark," Journal of Environmental Economics and Management, Elsevier, vol. 104(C).
    5. Filippini, M. & Heimsch, F. & Masiero, G., 2014. "Antibiotic consumption and the role of dispensing physicians," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 242-251.
    6. M. Filippini & G. Masiero, 2012. "An empirical analysis of habit and addiction to antibiotics," Empirical Economics, Springer, vol. 42(2), pages 471-486, April.
    7. Eswaran, Mukesh & Gallini, Nancy, 2017. "Can Competition Extend the Golden Age of Antibiotics?," Microeconomics.ca working papers -2017-9, Vancouver School of Economics, revised 19 Oct 2017.
    8. Herrmann, Markus & Gaudet, Gérard, 2009. "The economic dynamics of antibiotic efficacy under open access," Journal of Environmental Economics and Management, Elsevier, vol. 57(3), pages 334-350, May.
    9. Lemarié, Stéphane & Marcoul, Philippe, 2018. "Coordination and information sharing about pest resistance," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 135-149.
    10. Massimo Filippini & Laura González & Giuliano Masiero, 2010. "Estimating dynamic consumption of antibiotics using panel data: the shadow effect of bacterial resistance," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 1011, USI Università della Svizzera italiana.
    11. Markus Herrmann & Bruno Nkuiya, 2017. "Inducing optimal substitution between antibiotics under open access to the resource of antibiotic susceptibility," Health Economics, John Wiley & Sons, Ltd., vol. 26(6), pages 703-723, June.
    12. Barlow, Euan & Morton, Alec & Megiddo, Itamar & Colson, Abigail, 2022. "Optimal subscription models to pay for antibiotics," Social Science & Medicine, Elsevier, vol. 298(C).
    13. Farasat A.S. Bokhari & Franco Mariuzzo & Weijie Yan, 2019. "Antibacterial resistance and the cost of affecting demand: the case of UK antibiotics," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2019-03, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    14. Albert, Jason, 2021. "Strategic dynamics of antibiotic use and the evolution of antibiotic-resistant infections," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    15. Bialek, Sylwia, 2016. "Introducing Cattle Producer to the Hardin s World- Can Monopolies in Seed Markets Be Welfare Enhancing?," VfS Annual Conference 2016 (Augsburg): Demographic Change 145786, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    Antibiotic efficacy; public health; monopoly pricing; renewable resource; optimal control; turnpike; patent length;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices

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