Pharmaceutical Industry, Drug Quality and Regulation: Evidence from US and Italy
AbstractThis paper examines 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 a mix of minimum efficacy standards and price control mechanisms (MES+PC). Through a simple model of adverse selection we model the interaction between firms, heterogeneous buyers and the regulator. The theoretical analysis provides two results. First, an MES regime provides greater incentives to produce high quality drugs. Second, an MES+PC mix reduces the difference in price between the highest and lowest quality drugs on the market. The empirical analysis based on US and Italian data corroborates these results.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14567.
Date of creation: Dec 2008
Date of revision:
Note: HC HE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Vincenzo Atella & Jay Bhattacharya & Lorenzo Carbonari, 2008. "Pharmaceutical industry, drug quality and regulation. Evidence from US and Italy," CEIS Research Paper 138, Tor Vergata University, CEIS, revised 16 Dec 2008.
- 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:
- NEP-ALL-2008-12-21 (All new papers)
- NEP-COM-2008-12-21 (Industrial Competition)
- NEP-HEA-2008-12-21 (Health Economics)
- NEP-IND-2008-12-21 (Industrial Organization)
- NEP-MIC-2008-12-21 (Microeconomics)
- NEP-REG-2008-12-21 (Regulation)
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.:
- Bhattacharya, Jayanta & Vogt, William B, 2003. "A Simple Model of Pharmaceutical Price Dynamics," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 599-626, October.
- Danzon, Patricia M & Chao, Li-Wei, 2000. "Does Regulation Drive out Competition in Pharmaceutical Markets?," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 311-57, October.
- Patricia M. Danzon & Y. Richard Wang & Liang Wang, 2003.
"The Impact of Price Regulation on the Launch Delay of New Drugs - Evidence from Twenty-Five Major Markets in the 1990s,"
NBER Working Papers
9874, National Bureau of Economic Research, Inc.
- 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.
- A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
- 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.
- Enrico Pennings, .
"Optimal pricing and quality choice when investment in quality is irreversible,"
206, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Enrico Pennings, 2004. "Optimal Pricing And Quality Choice When Investment In Quality Is Irreversible," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 569-589, December.
- 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.
- Ernst R. Berndt & Adrian H. B. Gottschalk & Tomas Philipson, 2005. "Assessing the Impacts of the Prescription Drug User Fee Acts (PDUFA) on the FDA Approval Process," NBER Chapters, in: Frontiers in Health Policy Research, Volume 8 National Bureau of Economic Research, Inc.
- Berndt Ernst R. & Gottschalk Adrian H. B. & Philipson Tomas & Strobeck Matthew W., 2005. "Assessing the Impacts of the Prescription Drug User Fee Acts (PDUFA) on the FDA Approval Process," Forum for Health Economics & Policy, De Gruyter, vol. 8(1), pages 1-25, January.
- 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.
- Light, Donald W. & Warburton, Rebecca N., 2005. "Extraordinary claims require extraordinary evidence," Journal of Health Economics, Elsevier, vol. 24(5), pages 1030-1033, September.
- 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.
- 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.
- Gordon, Mirta B. & Nadal, Jean-Pierre & Phan, Denis & Vannimenus, Jean, 2005. "Seller's dilemma due to social interactions between customers," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 356(2), pages 628-640.
- Armstrong, Mark & Vickers, John, 1993.
"Price Discrimination, Competition and Regulation,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 41(4), pages 335-59, December.
- Jean-Pierre Nadal & Denis Phan & Mirta 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.
- 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.
- Danzon, Patricia M. & Towse, Adrian, 2003. "Differential Pricing for Pharmaceuticals: Reconciling Access, R&D and Patents," Working paper 258, Regulation2point0.
- Toshimitsu, Tsuyoshi, 2003. "Optimal R&D policy and endogenous quality choice," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1159-1178, October.
- Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
- Bernardo Batiz-Lazo & k Sarah Holland, 2004. "The Global Pharmaceutical Industry, 2004," General Economics and Teaching 0405002, EconWPA.
- Besanko, David & Donnenfeld, Shabtai & White, Lawrence J, 1988. "The Multiproduct Firm, Quality Choice, and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 411-29, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.