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Price‐cap Regulation, Uncertainty and the Price Evolution of New Pharmaceuticals

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  • Ali Shajarizadeh
  • Aidan Hollis

Abstract

This paper examines the effect of the regulations restricting price increases on the evolution of pharmaceutical prices. A novel theoretical model shows that this policy leads firms to price new drugs with uncertain demand above the expected value initially. Price decreases after drug launch are more likely, the higher the uncertainty. We empirically test the model's predictions using data from the Canadian pharmaceutical market. The level of uncertainty is shown to play a crucial role in drug pricing strategies. © 2014 The Authors. Health Economics Published by John Wiley & Sons Ltd.

Suggested Citation

  • Ali Shajarizadeh & Aidan Hollis, 2015. "Price‐cap Regulation, Uncertainty and the Price Evolution of New Pharmaceuticals," Health Economics, John Wiley & Sons, Ltd., vol. 24(8), pages 966-977, August.
    • Handle: RePEc:wly:hlthec:v:24:y:2015:i:8:p:966-977
    DOI: 10.1002/hec.3075
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    References listed on IDEAS

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    Cited by:

    1. Vasudha Wattal, 2022. "Pricing of new pharmaceuticals and price regulation in India," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2022-02, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    2. Ridley, David B. & Zhang, Su, 2017. "Regulation of price increases," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 186-213.
    3. Toon van der Gronde & Carin A Uyl-de Groot & Toine Pieters, 2017. "Addressing the challenge of high-priced prescription drugs in the era of precision medicine: A systematic review of drug life cycles, therapeutic drug markets and regulatory frameworks," PLOS ONE, Public Library of Science, vol. 12(8), pages 1-34, August.
    4. Zhang, Xiao-Bing & Fei, Yinxin & Zheng, Ying & Zhang, Lei, 2020. "Price ceilings as focal points to reach price uniformity: Evidence from a Chinese gasoline market," Energy Economics, Elsevier, vol. 92(C).

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