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Pricing, Profits, and Technological Progress in the Pharmaceutical Industry

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  • F. M. Scherer
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    Abstract

    The decades-old debate over pharmaceutical industry prices, profits, and innovation has again intensified. A number of events coalesced to refocus public interest on pharmaceuticals. Contributing to public concern were Bureau of Labor Statistics price index increases for pharmaceuticals far outpacing those for the products of other industries. Another prominent characteristic of the pharmaceutical industry has been its extraordinarily high reported profitability. This article examines the phenomena that precipitated the current pharmaceuticals debate, their historical antecedents, and the principal questions at issue. In the author's considered judgment, a pell-mell march toward regulation of pharmaceutical industry pricing could seriously impair the industry's incentives for investment in new products.

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.7.3.97
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    Article provided by American Economic Association in its journal Journal of Economic Perspectives.

    Volume (Year): 7 (1993)
    Issue (Month): 3 (Summer)
    Pages: 97-115

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    Handle: RePEc:aea:jecper:v:7:y:1993:i:3:p:97-115
    Note: DOI: 10.1257/jep.7.3.97
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    Keywords:

    Find related papers by JEL classification:

    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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    1. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G. & Lasagna, Louis, 1991. "Cost of innovation in the pharmaceutical industry," Journal of Health Economics, Elsevier, vol. 10(2), pages 107-142, July.
    2. Lacy Glenn Thomas, 1990. "Regulation and Firm Size: FDA Impacts on Innovation," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 497-517, Winter.
    3. Benoit Mandelbrot, 1963. "New Methods in Statistical Economics," Journal of Political Economy, University of Chicago Press, vol. 71, pages 421-421.
    4. Grabowski, Henry G & Vernon, John M & Thomas, Lacy Glenn, 1978. "Estimating the Effects of Regulation on Innovation: An International Comparative Analysis of the Pharmaceutical Industry," Journal of Law and Economics, University of Chicago Press, vol. 21(1), pages 133-163, April.
    5. Peter Temin, 1979. "Technology, Regulation, and Market Structure in the Modern Pharmaceutical Industry," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 429-446, Autumn.
    6. Thomas R. Stauffer, 1971. "The Measurement of Corporate Rates of Return: A Generalized Formulation," Bell Journal of Economics, The RAND Corporation, vol. 2(2), pages 434-469, Autumn.
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