When Is Prevention More Profitable than Cure? The Impact of Time-Varying Consumer Heterogeneity-Working Paper 334
We argue that in pharmaceutical markets, variation in the arrival time of consumer heterogeneity creates differences between a producer’s ability to extract consumer surplus with preventives and treatments, potentially distorting R&D decisions. If consumers vary only in disease risk, revenue from treatments—sold after the disease is contracted, when disease risk is no longer a source of private information—always exceeds revenue from preventives. The revenue ratio can be arbitrarily high for sufficiently skewed distributions of disease risk. Under some circumstances, heterogeneity in harm from a disease, learned after a disease is contracted, can lead revenue from a treatment to exceed revenue from a preventative. Calibrations suggest that skewness in the U.S. distribution of HIV risk would lead firms to earn only half the revenue from a vaccine as from a drug. Empirical tests are consistent with the predictions of the model that vaccines are less likely to be developed for diseases with substantial disease-risk heterogeneity.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harris, Milton & Raviv, Artur, 1981. "A Theory of Monopoly Pricing Schemes with Demand Uncertainty," American Economic Review, American Economic Association, vol. 71(3), pages 347-365, June.
- World Bank, 2000. "World Development Indicators 2000," World Bank Publications, The World Bank, number 13828, July.
- Kessing, Sebastian G. & Nuscheler, Robert, 2006.
"Monopoly pricing with negative network effects: The case of vaccines,"
European Economic Review,
Elsevier, vol. 50(4), pages 1061-1069, May.
- Kessing, Sebastian & Nuscheler, Robert, 2003.
"Monopoly pricing with negative network effects: the case of vaccines
[Monopolpreisbildung mit negativen Netzwerkeffekten am Beispiel von Impfstoffen]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2003-06, Social Science Research Center Berlin (WZB).
- Kessing, Sebastian & Nuscheler, Robert, 2003. "Monopoly pricing with negative network effects: the case of vaccines
- Pecorino, Paul, 2002. "Should the US allow prescription drug reimports from Canada?," Journal of Health Economics, Elsevier, vol. 21(4), pages 699-708, July.
- Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
- Courty, Pascal, 2002.
"Ticket Pricing Under Demand Uncertainty,"
CEPR Discussion Papers
3443, C.E.P.R. Discussion Papers.
- Gersovitz, Mark & Hammer, Jeffrey S., 2005. "Tax/subsidy policies toward vector-borne infectious diseases," Journal of Public Economics, Elsevier, vol. 89(4), pages 647-674, April.
- Blanchflower, David G. & Oswald, Andrew J., 2001.
"Well-Being Over Time in Britain and the USA,"
The Warwick Economics Research Paper Series (TWERPS)
616, University of Warwick, Department of Economics.
- Pascal Courty & Li Hao, 1997.
Economics Working Papers
224, Department of Economics and Business, Universitat Pompeu Fabra.
- Getzen, Thomas E., 2000. "Health care is an individual necessity and a national luxury: applying multilevel decision models to the analysis of health care expenditures," Journal of Health Economics, Elsevier, vol. 19(2), pages 259-270, March.
- Clay, Karen B & Sibley, David S & Srinagesh, Padmanabhan, 1992. "Ex Post vs. Ex Ante Pricing: Optional Calling Plans and Tapered Tariffs," Journal of Regulatory Economics, Springer, vol. 4(2), pages 115-138, June.
When requesting a correction, please mention this item's handle: RePEc:cgd:wpaper:334. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Roodman)
If references are entirely missing, you can add them using this form.