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

Author

Listed:
  • 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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    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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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs (American Economic Journal: Applied Economics 2012) in ReplicationWiki

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