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Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs

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  • Abe Dunn

Abstract

The pharmaceutical industry is characterized as having substantial investment in R&D and a large number of new product introductions, which poses special problems for price measurement caused by the quality of drug products changing over time. This paper applies recent demand estimation techniques to individual-level data to construct a constant-quality price index for anti-cholesterol drugs. Although the average price for anti-cholesterol drugs does not change over the sample period, I find that the constant-quality price index drops by 27 percent, a pace more in line with our expectations in such a dynamic segment of the industry. (JEL C43, L11, L65, O31)

Suggested Citation

  • Abe Dunn, 2012. "Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 167-189, July.
  • Handle: RePEc:aea:aejapp:v:4:y:2012:i:3:p:167-89
    Note: DOI: 10.1257/app.4.3.167
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kaiser, Ulrich & Mendez, Susan J. & Rønde, Thomas & Ullrich, Hannes, 2014. "Regulation of pharmaceutical prices: Evidence from a reference price reform in Denmark," Journal of Health Economics, Elsevier, vol. 36(C), pages 174-187.
    2. Dubois, Pierre & Kyle, Margaret, 2016. "The Effects of Pharmaceutical Innovation on Cancer Mortality Rates," TSE Working Papers 16-688, Toulouse School of Economics (TSE).
    3. Dubois, Pierre & Kyle, Margaret K, 2016. "The Effects of Pharmaceutical Innovation on Cancer Mortality," CEPR Discussion Papers 11487, C.E.P.R. Discussion Papers.
    4. Anne E. Hall, 2015. "Adjusting the Measurement of the Output of the Medical Sector for Quality: A Review of the Literature," BEA Working Papers 0122, Bureau of Economic Analysis.
    5. Tomaso Duso & Annika Herr & Moritz Suppliet, 2014. "The Welfare Impact Of Parallel Imports: A Structural Approach Applied To The German Market For Oral Anti‐Diabetics," Health Economics, John Wiley & Sons, Ltd., vol. 23(9), pages 1036-1057, September.
    6. Dunn, Abe & Shapiro, Adam Hale, 2015. "Does Medicare Part D save lives?," Working Paper Series 2015-4, Federal Reserve Bank of San Francisco.
    7. Susan J. Méndez, 2016. "Parallel Trade of Pharmaceuticals: The Danish Market for Statins," Melbourne Institute Working Paper Series wp2016n08, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    8. Lee Branstetter & Chirantan Chatterjee & Matthew J. Higgins, 2014. "Starving (or Fattening) the Golden Goose?: Generic Entry and the Incentives for Early-Stage Pharmaceutical Innovation," NBER Working Papers 20532, National Bureau of Economic Research, Inc.
    9. Suppliet, Moritz, 2017. "Umbrella Branding in Pharmaceutical Markets," Discussion Paper 2017-034, Tilburg University, Tilburg Law and Economic Center.
    10. repec:iae:iaewps:wp2016n8 is not listed on IDEAS
    11. Abe Dunn & Adam Hale Shapiro, 2011. "Physician Market Power and Medical-Care Expenditures," BEA Working Papers 0078, Bureau of Economic Analysis.
    12. Carlos González & Natalia Serna, 2013. "The consumer’s choice among television displays: A multinomial logit approach," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 79, pages 199-228.
    13. Carlos Giovanni González Espitia & Natalia Serna Borrero, 2014. "A discrete choice model approximation to the consumer’s choice among television displays," Alcamentos 1402, Universidad de Alcalá, Departamento de Economía..
    14. Abe Dunn & Eli Liebman & Adam Hale Shapiro, 2015. "Implications of Utilization Shifts on Medical‐care Price Measurement," Health Economics, John Wiley & Sons, Ltd., vol. 24(5), pages 539-557, May.

    More about this item

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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