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Retail price regulation and innovation: Reference pricing in the pharmaceutical industry

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  • Bardey, D.
  • Bommier, A.
  • Jullien, B.

Abstract

Our paper is a first attempt to evaluate the long run impact of reference pricing on pharmaceutical innovation, health and expenditures. The model is based on a dynamic game involving three types of agents: pharmaceutical firms, consumers and a regulatory entity. Pharmaceutical firms choose the level of research investment and its innovative content, then negotiate introductory prices for new drugs with the regulator. Reference pricing affects negatively the intensity of research and it also modifies the types of innovations that are brought to the market, deterring small innovations. The model is calibrated with a small data on statins in France. Our results suggest that reference pricing typically generates a decline in health, whereas discounted expenditures may decrease or increase, depending on the degree of deterrence of cost reducing innovations.

Suggested Citation

  • Bardey, D. & Bommier, A. & Jullien, B., 2010. "Retail price regulation and innovation: Reference pricing in the pharmaceutical industry," Journal of Health Economics, Elsevier, vol. 29(2), pages 303-316, March.
  • Handle: RePEc:eee:jhecon:v:29:y:2010:i:2:p:303-316
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    Cited by:

    1. González, Paula & Macho-Stadler, Inés & Pérez-Castrillo, David, 2016. "Private versus social incentives for pharmaceutical innovation," Journal of Health Economics, Elsevier, vol. 50(C), pages 286-297.
    2. Levaggi, Rosella, 2014. "Pricing schemes for new drugs: A welfare analysis," Social Science & Medicine, Elsevier, vol. 102(C), pages 69-73.
    3. Brekke, Kurt R. & Holmas, Tor Helge & Straume, Odd Rune, 2011. "Reference pricing, competition, and pharmaceutical expenditures: Theory and evidence from a natural experiment," Journal of Public Economics, Elsevier, vol. 95(7), pages 624-638.
    4. Refoios Camejo, Rodrigo & McGrath, Clare & Herings, Ron, 2011. "A dynamic perspective on pharmaceutical competition, drug development and cost effectiveness," Health Policy, Elsevier, vol. 100(1), pages 18-24, April.
    5. Bardey, David & Cremer, Helmuth & Lozachmeur, Jean-Marie, 2016. "The design of insurance coverage for medical products under imperfect competition," Journal of Public Economics, Elsevier, vol. 137(C), pages 28-37.
    6. Pierre Dubois & Olivier de Mouzon & Fiona Scott-Morton & Paul Seabright, 2015. "Market size and pharmaceutical innovation," RAND Journal of Economics, RAND Corporation, vol. 46(4), pages 844-871, October.
    7. Brekke, Kurt R. & Canta, Chiara & Straume, Odd Rune, 2016. "Reference pricing with endogenous generic entry," Journal of Health Economics, Elsevier, vol. 50(C), pages 312-329.
    8. repec:kap:ijhcfe:v:17:y:2017:i:2:d:10.1007_s10754-016-9205-5 is not listed on IDEAS
    9. Puig-Junoy, Jaume & López-Valcárcel, Beatriz González, 2014. "Launch prices for new pharmaceuticals in the heavily regulated and subsidized Spanish market, 1995–2007," Health Policy, Elsevier, vol. 116(2), pages 170-181.
    10. Hanna Koskinen & Elina Ahola & Leena Saastamoinen & Hennamari Mikkola & Jaana Martikainen, 2014. "The impact of reference pricing and extension of generic substitution on the daily cost of antipsychotic medication in Finland," Health Economics Review, Springer, vol. 4(1), pages 1-10, December.
    11. Charitini Stavropoulou & Tommaso Valletti, 2015. "Compulsory licensing and access to drugs," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(1), pages 83-94, January.
    12. Jullien, Bruno & Lefouili, Yassine, 2018. "Horizontal Mergers and Innovation," TSE Working Papers 18-892, Toulouse School of Economics (TSE), revised May 2018.
    13. Rodrigo Refoios Camejo & Clare McGrath & Marisa Miraldo & Frans Rutten, 2013. "The Determinants of Cost-Effectiveness Potential: An Historical Perspective on Lipid-Lowering Therapies," PharmacoEconomics, Springer, vol. 31(5), pages 445-454, May.
    14. Fernando Antoñanzas & Carmelo Juárez-Castelló & Roberto Rodríguez-Ibeas, 2011. "Innovation, loyalty and generic competition in pharmaceutical markets," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 2(1), pages 75-95, March.

    More about this item

    Keywords

    Innovation Me-too Reference pricing Pharmaceutical laboratories;

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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