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Retail price regulation and innovation: Reference pricing in the pharmaceutical industry

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  • Bardey, D.
  • Bommier, A.
  • Jullien, B.

Abstract

Our paper is a first attempt to evaluate the long run impact of reference pricing on pharmaceutical innovation, health and expenditures. The model is based on a dynamic game involving three types of agents: pharmaceutical firms, consumers and a regulatory entity. Pharmaceutical firms choose the level of research investment and its innovative content, then negotiate introductory prices for new drugs with the regulator. Reference pricing affects negatively the intensity of research and it also modifies the types of innovations that are brought to the market, deterring small innovations. The model is calibrated with a small data on statins in France. Our results suggest that reference pricing typically generates a decline in health, whereas discounted expenditures may decrease or increase, depending on the degree of deterrence of cost reducing innovations.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 29 (2010)
Issue (Month): 2 (March)
Pages: 303-316

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Handle: RePEc:eee:jhecon:v:29:y:2010:i:2:p:303-316

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Web page: http://www.elsevier.com/locate/inca/505560

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Keywords: Innovation Me-too Reference pricing Pharmaceutical laboratories;

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References

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Citations

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Cited by:
  1. Fernando Antoñanzas & Carmelo Juárez-Castelló & Roberto Rodríguez-Ibeas, 2011. "Innovation, loyalty and generic competition in pharmaceutical markets," SERIEs, Spanish Economic Association, vol. 2(1), pages 75-95, March.
  2. Levaggi, Rosella, 2014. "Pricing schemes for new drugs: A welfare analysis," Social Science & Medicine, Elsevier, vol. 102(C), pages 69-73.
  3. Brekke, Kurt R. & Holmas, Tor Helge & Straume, Odd Rune, 2011. "Reference pricing, competition, and pharmaceutical expenditures: Theory and evidence from a natural experiment," Journal of Public Economics, Elsevier, vol. 95(7), pages 624-638.
  4. Rodrigo Refoios Camejo & Clare McGrath & Marisa Miraldo & Frans Rutten, 2013. "The Determinants of Cost-Effectiveness Potential: An Historical Perspective on Lipid-Lowering Therapies," PharmacoEconomics, Springer, vol. 31(5), pages 445-454, May.
  5. Kurt R. Brekke & Astrid L. Grasdal & Tor Helge Holmås, 2007. "Regulation and Pricing of Pharmaceuticals: Reference Pricing or Price Cap Regulation?," CESifo Working Paper Series 2059, CESifo Group Munich.
  6. Refoios Camejo, Rodrigo & McGrath, Clare & Herings, Ron, 2011. "A dynamic perspective on pharmaceutical competition, drug development and cost effectiveness," Health Policy, Elsevier, vol. 100(1), pages 18-24, April.
  7. Puig-Junoy, Jaume & López-Valcárcel, Beatriz González, 2014. "Launch prices for new pharmaceuticals in the heavily regulated and subsidized Spanish market, 1995–2007," Health Policy, Elsevier, vol. 116(2), pages 170-181.

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