Advanced Search
MyIDEAS: Login to save this paper or follow this series

Pricing of Drugs with Heterogeneous Health Insurance Coverage

Contents:

Author Info

  • Paul Missios

    ()
    (Department of Economics, Ryerson University, Toronto, Canada)

  • Ida Ferrara

    ()
    (DEpartment of Economics, York University, Toronto, Canada)

Abstract

In this paper, we examine the role of insurance coverage in explaining the generic competition paradox in a two-stage game involving a single producer of brand-name drugs and n quantity-competing producers of generic drugs. Independently of brand loyalty, which some studies rely upon to explain the paradox, we show that heterogene- ity in insurance coverage may result in higher prices of brand-name drugs following generic entry. With market segmentation based on insurance coverage present in both the pre- and post-entry stages, the paradox can arise when the two types of drugs are highly substitutable and the market is quite pro?table but does not have to arise when the two types of drugs are highly di¤erentiated. However, with market segmentation occuring only after generic entry, the paradox can arise when the two types of drugs are weakly substituables, provided, however, that the industry is not very pro?table. In both cases, that is, when market segmentation is present in the pre-entry stage and when it is not, the paradox becomes more likely to arise as the market expands and/or insurance companies decrease deductables applied on the purchase of generic drugs.

Download Info

If 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.
File URL: http://economics.ryerson.ca/workingpapers/wp026.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Ryerson University, Department of Economics in its series Working Papers with number 026.

as in new window
Length: 39 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:rye:wpaper:wp026

Contact details of provider:
Postal: 350 Victoria Street, Toronto, Ontario, M5B 2K3
Phone: (416) 979-5092
Fax: (415) 979-5273
Web page: http://www.ryerson.ca/economics/
More information through EDIRC

Related research

Keywords: brand-name pricing; generic entry; generic competition paradox; health insurance; health economics.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. F. M. Scherer, 1993. "Pricing, Profits, and Technological Progress in the Pharmaceutical Industry," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 97-115, Summer.
  2. Morton I. Kamien & Israel Zang, 1999. "Virtual Patent Extension by Cannibalization," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 117-131, July.
  3. Ramon Caminal & Xavier Vives, 1999. "Price Dynamics and Consumer Learning," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(1), pages 95-131, 03.
  4. Ernst R. Berndt & Zvi Griliches & Joshua G. Rosett, 1992. "Auditing the Producer Price Index: Micro Evidence From Prescription Pharmaceutical Preparations," NBER Working Papers 4009, National Bureau of Economic Research, Inc.
  5. Griliches, Zvi & Cockburn, Iain, 1994. "Generics and New Goods in Pharmaceutical Price Indexes," American Economic Review, American Economic Association, vol. 84(5), pages 1213-32, December.
  6. Steven J. Davis & Kevin M. Murphy & Robert H. Topel, 2001. "Entry, Pricing and Product Design in an Initially Monopolized Market," NBER Working Papers 8547, National Bureau of Economic Research, Inc.
  7. Perloff, Jeffrey M. & Suslow, Valerie Y. & Seguin, Paul J., 1996. "Higher Prices from Entry: Pricing of Brand-Name Drugs," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt1sh175fc, Department of Agricultural & Resource Economics, UC Berkeley.
  8. Brekke, Kurt R. & Grasdal, Astrid L. & Holms, Tor Helge, 2009. "Regulation and pricing of pharmaceuticals: Reference pricing or price cap regulation?," European Economic Review, Elsevier, vol. 53(2), pages 170-185, February.
  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. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
  11. 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.
  12. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 75-90, 03.
  13. Judith K. Hellerstein, 1994. "The Demand for Post-Patent Prescription Pharmaceuticals," NBER Working Papers 4981, National Bureau of Economic Research, Inc.
  14. Aslam H. Anis, 1992. "Pharmaceutical Prices with Insurance Coverage and Formularies," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 420-37, May.
  15. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  16. Hurwitz, Mark A & Caves, Richard E, 1988. "Persuasion or Information? Promotion and the Shares of Brand Name and Generic Pharmaceuticals," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 299-320, October.
  17. Ferrara, Ida & Kong, Ying, 2008. "Can health insurance coverage explain the generic competition paradox?," Economics Letters, Elsevier, vol. 101(1), pages 48-52, October.
  18. Grabowski, Henry G & Vernon, John M, 1992. "Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 331-50, October.
  19. 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.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Nabin Munirul Haque & Mohan Vijay & Nicholas Aaron & Sgro Pasquale M., 2012. "Therapeutic Equivalence and the Generic Competition Paradox," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-26, November.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:rye:wpaper:wp026. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maurice Roche).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.