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Research funding and price negotiation for new drugs

Author

Listed:
  • Francesca Barigozzi

    (UNIBO - Alma Mater Studiorum Università di Bologna = University of Bologna)

  • Izabela Jelovac

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Pharmaceutical innovations result from the successful achievement of basic research, produced by an upstream lab, and applied research, produced by a downstream lab. We focus on the negotiation process to finance basic research by setting public and private grants and to agree on the final price of a new drug. We show that exclusive funding of basic research is desirable. To increase consumers’ surplus and reduce negotiated prices for new drugs, basic and applied research should be integrated if the lab producing applied research has a relatively large bargaining power. When instead the health authority has the larger bargaining power, integration with the producer of basic research increases negotiated prices for new drugs and should be avoided, unless the gain in bargaining power after the integration is extremely high.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Francesca Barigozzi & Izabela Jelovac, 2019. "Research funding and price negotiation for new drugs," Post-Print halshs-02148462, HAL.
    • Handle: RePEc:hal:journl:halshs-02148462
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Chris Sampson’s journal round-up for 28th December 2020
      by Chris Sampson in The Academic Health Economists' Blog on 2020-12-28 12:00:00

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    Cited by:

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    2. 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.
    3. Thomas M. Fullerton & Steven L. Fullerton, 2022. "Aggregate Online Brand Name Pharmacy Price Dynamics for the United States and Mexico," Economies, MDPI, vol. 10(5), pages 1-5, May.

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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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