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The strategic interaction between firms and formulary committees: Effects on the prices of new drugs

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Author Info
María García-Alonso () (Department of Economics, University of Kent)
Begoña García-Mariñoso () (Department of Economics, City University, London)

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Abstract

We study the strategic interaction between the pricing decisions of a pharmaceutical firm and the reimbursement decisions of a government agency which grants reimbursement rights to patients for whom new drugs are most cost-effective. If the reimbursement decision precedes pricing, the agency only reimburses some patients if the drug’s private and public health benefits diverge. This is, there are consumption externalities and the variable cost of the drug exceeds the alternative’s. Contrarily, if the firm can commit to a price before reimbursement, a strategic effect implies that by setting a sufficiently high price, the firm can make the agency more willing to reimburse than without commitment.

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Publisher Info
Paper provided by Department of Economics, City University, London in its series City University Economics Discussion Papers with number 07/16.

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Length: 42 pages
Date of creation: Nov 2007
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Handle: RePEc:cty:dpaper:07/16

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Related research
Keywords: Drug formularies; subsidies.;

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Find related papers by JEL classification:
I10 - Health, Education, and Welfare - - Health - - - General
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Joan-Ramon Borrell, 2003. "Drug Price Differentials Caused by Formularies and Price Caps," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 10(1), pages 35-48, January. [Downloadable!] (restricted)
  2. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-39, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rajat Acharyya & Maria D.C. Garcia-Alonso, 2008. "Income-Based Price Subsidies, Parallel Imports and Markets Access to New Drugs for the Poor," Studies in Economics 0820, Department of Economics, University of Kent. [Downloadable!]
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