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Monopoly Pricing of an Antibiotic Subject to Bacterial Resistance

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  • Markus Herrmann
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    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.

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    Bibliographic Info

    Paper provided by CIRPEE in its series Cahiers de recherche with number 0946.

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    Date of creation: 2009
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    Handle: RePEc:lvl:lacicr:0946

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    Related research

    Keywords: Antibiotic efficacy; public health; monopoly pricing; renewable resource; optimal control; turnpike; patent length;

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    1. Fischer, Carolyn & Laxminarayan, Ramanan, 2005. "Sequential development and exploitation of an exhaustible resource: do monopoly rights promote conservation?," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 500-515, May.
    2. Coast, J. & Smith, R. D. & Millar, M. R., 1998. "An economic perspective on policy to reduce antimicrobial resistance," Social Science & Medicine, Elsevier, vol. 46(1), pages 29-38, January.
    3. Mark Gersovitz & Jeffrey S. Hammer, 2004. "The Economical Control of Infectious Diseases," Economic Journal, Royal Economic Society, vol. 114(492), pages 1-27, 01.
    4. Kingston, William, 2000. "Antibiotics, invention and innovation," Research Policy, Elsevier, vol. 29(6), pages 679-710, June.
    5. Laxminarayan, Ramanan & Brown, Gardner M., 2001. "Economics of Antibiotic Resistance: A Theory of Optimal Use," Journal of Environmental Economics and Management, Elsevier, vol. 42(2), pages 183-206, September.
    6. Tisdell, Clem, 1982. "Exploitation of Techniques That Decline in Effectiveness with Use," Public Finance = Finances publiques, , vol. 37(3), pages 428-37.
    7. Stéphane Mechoulan, 2007. "Market structure and communicable diseases," Canadian Journal of Economics, Canadian Economics Association, vol. 40(2), pages 468-492, May.
    8. John B. Horowitz & H. Brian Moehring, 2004. "How property rights and patents affect antibiotic resistance," Health Economics, John Wiley & Sons, Ltd., vol. 13(6), pages 575-583.
    9. 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.
    10. Gardner Brown & Ramanan Laxminarayan, 1998. "Economics of Antibiotic Resistance," Working Papers 0060, University of Washington, Department of Economics.
    11. Scott Morton, Fiona M., 2000. "Barriers to entry, brand advertising, and generic entry in the US pharmaceutical industry," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1085-1104, October.
    12. Kessing, Sebastian G. & Nuscheler, Robert, 2006. "Monopoly pricing with negative network effects: The case of vaccines," European Economic Review, Elsevier, vol. 50(4), pages 1061-1069, May.
    13. Rudholm, Niklas, 2002. "Economic implications of antibiotic resistance in a global economy," Journal of Health Economics, Elsevier, vol. 21(6), pages 1071-1083, November.
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