This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Pharmaceutical Industry, Drug Quality and Regulation: Evidence from US and Italy

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Vincenzo Atella
Jay Bhattacharya
Lorenzo Carbonari

Additional information is available for the following registered author(s):

Abstract

The aim of this article is to analyze the relationship between drug price and drug quality and how it varies across two of the most common regulatory regimes in the pharmaceutical market: Minimum Efficacy Standards (MES) and Price Controls (PC). We develop a model of adverse selection where a pharmaceutical company can charge different prices to a heterogeneous group of buyers for its (innovative) drug, and we evaluate the properties of the equilibria under the two regimes. We model consumer heterogeneity stemming from differences in the willingness-to-pay for drug quality, measured through ex-post efficacy. The theoretical analysis provides two main results. First, the average drug quality delivered is higher under the MES regime than in the PC regime or a in combination of the two. Second, PC regulation reduces the difference in terms of high-low quality drug prices. The empirical analysis based on Italian and US data corroborates these results.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w14567.pdf
File Format: application/pdf
File Function:
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14567.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:nbr:nberwo:14567

Note: HC HE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords:

Other versions of this item:

Find related papers by JEL classification:
I1 - Health, Education, and Welfare - - Health
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology

This paper has been announced in the following NEP Reports:

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. Bernardo Batiz-Lazo & k Sarah Holland, 2004. "The Global Pharmaceutical Industry, 2004," General Economics and Teaching 0405002, EconWPA. [Downloadable!]
  2. Dale T. Mortensen & Randall Wright, 2002. "Competitive Pricing and Efficiency in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 1-20, February. [Downloadable!] (restricted)
  3. Marisa Miraldo, 2007. "Reference Pricing Versus Co-Payment in the Pharmaceutical Industry: Price, Quality and Market Coverage," Working Papers 025cherp, Centre for Health Economics, University of York. [Downloadable!]
  4. Armstrong, Mark & Vickers, John, 1993. "Price Discrimination, Competition and Regulation," Journal of Industrial Economics, Blackwell Publishing, vol. 41(4), pages 335-59, December. [Downloadable!] (restricted)
    Other versions:
  5. Toshimitsu, Tsuyoshi, 2003. "Optimal R&D policy and endogenous quality choice," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1159-1178, October. [Downloadable!] (restricted)
  6. Jean-Pierre Nadal & Denis Phan∥ & Mirta B. Gordon & Jean Vannimenus, 2005. "Multiple equilibria in a monopoly market with heterogeneous agents and externalities," Quantitative Finance, Taylor and Francis Journals, vol. 5(6), pages 557-568, December. [Downloadable!] (restricted)
  7. Danzon, Patricia M & Chao, Li-Wei, 2000. "Does Regulation Drive out Competition in Pharmaceutical Markets?," Journal of Law & Economics, University of Chicago Press, vol. 43(2), pages 311-57, October.
  8. Light, Donald W. & Warburton, Rebecca N., 2005. "Extraordinary claims require extraordinary evidence," Journal of Health Economics, Elsevier, vol. 24(5), pages 1030-1033, September. [Downloadable!] (restricted)
  9. Ernst R. Berndt & Adrian H. B. Gottschalk & Tomas Philipson & Matthew W. Strobeck, 2004. "Assessing the Impacts of the Prescription Drug User Fee Acts (PDUFA) on the FDA Approval Process," NBER Working Papers 10822, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Peltzman, Sam, 1973. "An Evaluation of Consumer Protection Legislation: The 1962 Drug Amendments," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1049-91, Sept.-Oct. [Downloadable!] (restricted)
  11. Enrico Pennings, 2004. "Optimal Pricing And Quality Choice When Investment In Quality Is Irreversible," Journal of Industrial Economics, Blackwell Publishing, vol. 52(4), pages 569-589, December. [Downloadable!] (restricted)
    Other versions:
  12. Bhattacharya, Jayanta & Vogt, William B, 2003. "A Simple Model of Pharmaceutical Price Dynamics," Journal of Law & Economics, University of Chicago Press, vol. 46(2), pages 599-626, October.
  13. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2005. "Extraordinary claims require extraordinary evidence," Journal of Health Economics, Elsevier, vol. 24(5), pages 1034-1044, September. [Downloadable!] (restricted)
  14. Besanko, David & Donnenfeld, Shabtai & White, Lawrence J, 1988. "The Multiproduct Firm, Quality Choice, and Regulation," Journal of Industrial Economics, Blackwell Publishing, vol. 36(4), pages 411-29, June. [Downloadable!] (restricted)
  15. Patricia M. Danzon & Y. Richard Wang & Liang Wang, 2005. "The impact of price regulation on the launch delay of new drugs-evidence from twenty-five major markets in the 1990s," Health Economics, John Wiley & Sons, Ltd., vol. 14(3), pages 269-292. [Downloadable!]
    Other versions:
  16. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August. [Downloadable!] (restricted)
  17. Ernst R. Berndt, 2002. "Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 45-66, Fall. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? You can import bibliographic info in various formats into you bibliographic tool, or just into your word processor. See under "publisher info" on each abstract page.

This page was last updated on 2009-11-25.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.