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Positioning and negotiations: The case of pharmaceutical pricing

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  • Grepperud, Sverre
  • Pedersen, Pål Andreas

Abstract

We study a positioning game prior to negotiations where each party invests into influential activities in order to raise voter support for their preferred bargaining outcome. The case chosen for our analysis is a bilateral monopoly where a purchaser meets a pharmaceutical firm and where the two negotiate on the price of a new and innovative medicine. We identify factors that influence on the negotiated price such as treatment effects of the new and the existing drug, production costs of the new drug, the price of the existing drug, the marginal cost of public funds and patient group size. Furthermore, it is shown that the negotiated price, depending on the characteristics of a political cost function with regard to the influential activities, is influenced by the order of moves taken by the parties. Regardless of the strategic interrelationships between the two parties, likely positioning games to be played are those where one of the two negotiating parties acts as a leader while the rival acts as a follower.

Suggested Citation

  • Grepperud, Sverre & Pedersen, Pål Andreas, 2020. "Positioning and negotiations: The case of pharmaceutical pricing," European Journal of Political Economy, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:poleco:v:62:y:2020:i:c:s017626802030001x
    DOI: 10.1016/j.ejpoleco.2020.101853
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    Cited by:

    1. Wettstein, Dominik J. & Boes, Stefan, 2022. "How value-based policy interventions influence price negotiations for new medicines: An experimental approach and initial evidence," Health Policy, Elsevier, vol. 126(2), pages 112-121.
    2. Sverre Grepperud & Pål Andreas Pedersen, 2022. "First and second mover advantages and the degree of conflicting interests," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1861-1873, September.
    3. Riccaboni, Massimo & Swoboda, Torben & Van Dyck, Walter, 2022. "Pharmaceutical net price transparency across european markets: Insights from a multi-agent simulation model," Health Policy, Elsevier, vol. 126(6), pages 534-540.

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    More about this item

    Keywords

    Negotiation; Positioning; Pharmaceutical pricing; Lobbying; Campaigning;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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