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Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price

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  • Ernst R. Berndt

Abstract

The U.S. pharmaceutical industry has again become the focus of considerable controversy. In understanding the economics underlying this industry, distinctions between short, medium and long-run costs are critical, as is that between economic and accounting costs. Consumers' heterogeneous valuations create strong incentives for non-uniform pricing and targeted marketing. The conflict between static efficiency (price new drugs low, near short-run marginal cost) and dynamic efficiency (price new drugs high, maintain incentives for innovation) is deep and enduring. This trade-off is becoming more severe as the relative costs of bringing new drugs to market have increased sharply.

Suggested Citation

  • 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.
    • Handle: RePEc:aea:jecper:v:16:y:2002:i:4:p:45-66
    Note: DOI: 10.1257/089533002320950975
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/089533002320950975
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    References listed on IDEAS

    as
    1. Michael Kremer, 2001. "Creating Markets for New Vaccines - Part I: Rationale," NBER Chapters, in: Innovation Policy and the Economy, Volume 1, pages 35-72, National Bureau of Economic Research, Inc.
    2. Ernst R. Berndt & Margaret Kyle & Davina Ling, 2003. "The Long Shadow of Patent Expiration. Generic Entry and Rx-to-OTC Switches," NBER Chapters, in: Scanner Data and Price Indexes, pages 229-267, National Bureau of Economic Research, Inc.
    3. Berndt, Ernst R., 2000. "International comparisons of pharmaceutical prices: what do we know, and what does it mean?," Journal of Health Economics, Elsevier, vol. 19(2), pages 283-287, March.
    4. Michael Kremer, 2001. "Creating Markets for New Vaccines - Part II: Design Issues," NBER Chapters, in: Innovation Policy and the Economy, Volume 1, pages 73-118, National Bureau of Economic Research, Inc.
    5. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    6. Sara Fisher Ellison & Christopher M. Snyder, 2010. "Countervailing Power In Wholesale Pharmaceuticals," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 32-53, March.
    Full references (including those not matched with items on IDEAS)

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