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External reference pricing and the choice of country baskets and pricing rules

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  • Birg, Laura

Abstract

This paper models different external reference pricing schemes - a price cap based on the drug price in one or two countries and on the minimum or average drug price - in a three-country framework. It studies the choice of external reference pricing schemes in one country as well as its effect on welfare in the other countries, the manufacturer´s export decision, and the incentives for the other countries to also adopt an external reference pricing scheme. Depending on market size in the country adopting external reference pricing and market size difference of the other two countries, welfare is highest under the minimum price-rule or under the average price-rule. External reference pricing increases the drug price and decreases welfare in the other countries. If the market size in the country adopting an external reference pricing scheme is sufficiently large, the manufacturer does not export to the other countries. There is the incentive for the other countries also adopt external reference pricing.

Suggested Citation

  • Birg, Laura, 2016. "External reference pricing and the choice of country baskets and pricing rules," University of Göttingen Working Papers in Economics 279, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:279
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    References listed on IDEAS

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    1. Verniers, I.W.J. & Stremersch, S. & Croux, C., 2011. "The Global Entry of New Pharmaceuticals: A Joint Investigation of Launch Window and Price," ERIM Report Series Research in Management ERS-2011-010-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    2. Verniers, Isabel & Stremersch, Stefan & Croux, Christophe, 2011. "The global entry of new pharmaceuticals: A joint investigation of launch window and price," International Journal of Research in Marketing, Elsevier, vol. 28(4), pages 295-308.
    3. Margaret K. Kyle, 2007. "Pharmaceutical Price Controls and Entry Strategies," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 88-99, February.
    4. Anke Richter, 2008. "Assessing the Impact of Global Price Interdependencies," PharmacoEconomics, Springer, vol. 26(8), pages 649-659, August.
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    Cited by:

    1. Foad Iravani & Hamed Mamani & Emisa Nategh, 2020. "External Reference Pricing and Parallel Imports of Pharmaceuticals: A Policy Comparison," Production and Operations Management, Production and Operations Management Society, vol. 29(12), pages 2716-2735, December.
    2. Nicolas Houy & Izabela Jelovac, 2019. "Comparing approval procedures for new drugs," The World Economy, Wiley Blackwell, vol. 42(5), pages 1598-1619, May.
    3. Gamba, S.; & Pertile, P.; & Righetti, G.;, 2022. "Spillovers of Pharmaceutical Price Regulations: evidence from the AMNOG Reform in Germany," Health, Econometrics and Data Group (HEDG) Working Papers 22/20, HEDG, c/o Department of Economics, University of York.

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    More about this item

    Keywords

    external reference pricing;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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