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Going Through The Roof: On Prices for Drugs Sold Through Insurance

Author

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  • Jurjen Kamphorst

    (Erasmus University Rotterdam)

  • Vladimir Karamychev

    (Erasmus University Rotterdam)

Abstract

We offer a theory of how the combination of budget constraints and insurance drives up prices. A natural context for our theory is the health care market, where drug prices can be very high. Our model predicts that monopoly prices for orphan drugs are inversely related to the prevalence up until a maximum price. This is supported by empirical evidence in the literature. As a result, prices of drugs sold by a monopoly treating rare serious diseases are doomed to go sky high.

Suggested Citation

  • Jurjen Kamphorst & Vladimir Karamychev, 2021. "Going Through The Roof: On Prices for Drugs Sold Through Insurance," Tinbergen Institute Discussion Papers 21-005/VII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20210005
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    File URL: https://papers.tinbergen.nl/21005.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Boone, Jan, 2024. "Pricing above value: Selling to a market with selection problems," Journal of Health Economics, Elsevier, vol. 94(C).

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    More about this item

    Keywords

    Monopoly pricing; Insurance; Orphan Drugs;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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