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The Determinants of Pricing in Pharmaceuticals: Are U.S. prices really so high?

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  • Antonio Cabrales
  • Sergi Jiménez-Martín

Abstract

This paper studies price determination in pharmaceutical markets using data for 25 countries, six years and a comprehensive list of products from the MIDAS IMS database. A key finding is that the U.S. has prices that are not significantly higher than those of countries with similar income levels, specially those that are "lightly regulated". More importantly, price differences to the US levels increase for "branded" or innovative products, and decrease, regardless of the level of regulation for mature or widely diffused molecules. In addition, the nationality of the producer appears to have a small and often in significant impact on prices. We have constructed a theoretical model that accounts for all these findings simultaneously. One interesting aspect of the model is that it shows that reference pricing confers a degree of protection against government intervention. Thus, there is a sense in which a reference price (or similar) policy in one country becomes a “commitment device to avoid lowering price in another one.

Suggested Citation

  • Antonio Cabrales & Sergi Jiménez-Martín, 2008. "The Determinants of Pricing in Pharmaceuticals: Are U.S. prices really so high?," Working Papers 2008-18, FEDEA.
  • Handle: RePEc:fda:fdaddt:2008-18
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    Cited by:

    1. Herr, A. & Suppliet, M., 2011. "Co-Payment Exemptions and Reference Prices: an Empirical Study of Pharmaceutical Prices in Germany," Health, Econometrics and Data Group (HEDG) Working Papers 11/18, HEDG, c/o Department of Economics, University of York.
    2. Manuel Coutinho Pereira & Hugo Vilares, 2014. "A review of the pharmaceutical market in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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