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Value-Based Pricing Alternatives for Personalised Drugs: Implications of Asymmetric Information and Competition

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  • Rosella Levaggi

    () (University of Brescia)

  • Paolo Pertile

    (University of Verona)

Abstract

The market for new drugs is changing: personalised drugs will increase the heterogeneity in patients’ responses and, possibly, costs. In this context, price regulation will play an increasingly important role. In this article, we argue that personalised medicine opens new scenarios in the relationship between value-based prices, regulation and industry listing strategies. Our focus is on the role of asymmetry of information and competition. We show that, if the firm has more information than the payer on the heterogeneity in patients’ responses and it adopts a profit-maximising listing strategy, the outcome may be independent of the choice of the type of value-based price. In this case, the information advantage that the manufacturer has prevents the payer from using marginal value-based prices to extract part of the surplus. However, in a dynamic setting where competition by a new entrant is possible, the choice of the type of value-based price may matter. We suggest that more research should be devoted to the dynamic analysis of price regulation for personalised medicines.

Suggested Citation

  • Rosella Levaggi & Paolo Pertile, 2020. "Value-Based Pricing Alternatives for Personalised Drugs: Implications of Asymmetric Information and Competition," Applied Health Economics and Health Policy, Springer, vol. 18(3), pages 357-362, June.
  • Handle: RePEc:spr:aphecp:v:18:y:2020:i:3:d:10.1007_s40258-019-00541-z
    DOI: 10.1007/s40258-019-00541-z
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    References listed on IDEAS

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    1. Towse, A. & Cole, A. & Zamora, B., 2018. "The Debate on Indication-Based Pricing in the U.S. and Five Major European Countries," Consulting Reports 002009, Office of Health Economics.
    2. Karl Claxton & Mark Sculpher & Stuart Carroll, 2011. "Value-based pricing for pharmaceuticals: Its role, specification and prospects in a newly devolved NHS," Working Papers 060cherp, Centre for Health Economics, University of York.
    3. Neri, M. & Towse, A. & Garau, M., 2018. "Multi-Indication Pricing (MIP): Practical Solutions and Steps to Move Forward," Briefings 002084, Office of Health Economics.
    4. Rosella Levaggi & Paolo Pertile, 2016. "Pricing policies when patients are heterogeneous: a welfare analysis," Working Papers 17/2016, University of Verona, Department of Economics.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Chris Sampson’s journal round-up for 1st June 2020
      by Chris Sampson in The Academic Health Economists' Blog on 2020-06-01 11:00:00

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    Cited by:

    1. Joan Costa‐Font & Rosella Levaggi, 2020. "Innovation, aging, and health care: Unraveling “silver” from “red” herrings?," Health Economics, John Wiley & Sons, Ltd., vol. 29(S1), pages 3-7, October.

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