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The Determinants of Pricing in Pharmaceuticals: Are U.S. prices really higher than those of Canada?

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  • Antonio Cabrales
  • Sergi Jiménez-Martín

Abstract

This paper studies price determination in pharmaceutical markets using data for 25 countries, six years and a comprehensive list of products from the MIDAS IMS database. We show that market power and the quality of the product has a significantly positive impact of prices. The nationality of the producer appears to have a small and often insignificant impact on prices, which suggests that countries which regulates prices have relatively little power to do it in a way that advances narrow national interest. We produce a theoretical explanation for this phenomenon based on the fact that low negotiated prices in a country would have a knock-on effect in other markets, and is thus strongly resisted by producers. Another key finding is that the U.S. has prices that are not significantly higher than those of countries with similar income levels. This, together with the former observation on the effect of the nationality of producers casts doubt on the ability of countries to pursue "free-riding" regulation.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 304.

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Date of creation: Apr 2007
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Handle: RePEc:bge:wpaper:304

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Keywords: Pharmaceutical prices.;

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  1. Berndt, Ernst R. & Pindyck, Robert S. & Azoulay, Pierre, 1970-, 1998. "Network effects and diffusion in pharmaceutical markets : antiulcer drugs," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management WP 4059-98., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Danzon, Patricia M. & Chao, Li-Wei, 2000. "Cross-national price differences for pharmaceuticals: how large, and why?," Journal of Health Economics, Elsevier, Elsevier, vol. 19(2), pages 159-195, March.
  3. Maria Arbatskaya & Morten Hviid & Greg Shaffer, 1999. "On the incidence and Variety of Low-Price Guarantees," CIE Discussion Papers, University of Copenhagen. Department of Economics. Centre for Industrial Economics 1999-10, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  4. Gambardella, Alfonso & Orsenigo, Luigi & Pammolli, Fabio, 2000. "Global Competitiveness in Pharmaceuticals: A European Perspective," MPRA Paper 15965, University Library of Munich, Germany.
  5. Beatriz Domínguez & Juan José Ganuza & Gerard Llobet, 2005. "R&D in the pharmaceutical industry: A world of small innovations," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 936, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Iain M. Cockburn & Aslam H. Anis, 1998. "Hedonic Analysis of Arthritis Drugs," NBER Working Papers 6574, National Bureau of Economic Research, Inc.
  7. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 69-85, January.
  8. Danzon, Patricia M & Chao, Li-Wei, 2000. "Does Regulation Drive out Competition in Pharmaceutical Markets?," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 43(2), pages 311-57, October.
  9. Richard G. Frank & David S. Salkever, 1995. "Generic Entry and the Pricing of Pharmaceuticals," NBER Working Papers 5306, National Bureau of Economic Research, Inc.
  10. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 6(1), pages 75-90, 03.
  11. Z. John Lu & William S. Comanor, 1998. "Strategic Pricing Of New Pharmaceuticals," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 108-118, February.
  12. Scherer, F.M., 2000. "The pharmaceutical industry," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 25, pages 1297-1336 Elsevier.
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Cited by:
  1. Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2011. "External referencing and pharmaceutical price negotiation," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(6), pages 737-756, June.

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