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The drug bargaining game: Pharmaceutical regulation in Australia, CHERE Discussion Paper No 51

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  • Donald J Wright

    () (Department of econoics, University of Sydney)

Abstract

Many countries, including Australia, regulate the price consumers pay for pharmaceuticals. In this paper, the Australian Pharmaceutical Benefits Scheme (PBS) is modelled as a multi-stage game played between the regulator and pharmaceutical firms. Conditions are derived under which vertically differentiated firms are regulated and a number of issues are discussed. These include efficiency, regulated firm profitability, leakage, and price discrimination. An extension examines the introduction of new drugs and concludes that if all the benefits of a new drug are to be realised, then existing agreements and transfers (per-unit subsidies) need to be renegotiated.

Suggested Citation

  • Donald J Wright, 2002. "The drug bargaining game: Pharmaceutical regulation in Australia, CHERE Discussion Paper No 51," Discussion Papers 51, CHERE, University of Technology, Sydney.
  • Handle: RePEc:her:chedps:51
    as

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    File URL: http://www.chere.uts.edu.au/pdf/dp51.pdf
    File Function: First version, 2002
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    References listed on IDEAS

    as
    1. Anis, Aslam H. & Wen, Quan, 1998. "Price regulation of pharmaceuticals in Canada," Journal of Health Economics, Elsevier, vol. 17(1), pages 21-38, January.
    2. Danzon, Patricia M & Chao, Li-Wei, 2000. "Does Regulation Drive out Competition in Pharmaceutical Markets?," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 311-357, October.
    3. Nina Pavcnik, 2002. "Do Pharmaceutical Prices Respond to Potential Patient Out-of-Pocket Expenses?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 469-487, Autumn.
    4. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    5. Danzon, Patricia M. & Chao, Li-Wei, 2000. "Cross-national price differences for pharmaceuticals: how large, and why?," Journal of Health Economics, Elsevier, vol. 19(2), pages 159-195, March.
    6. Berndt, Ernst R., 2000. "International comparisons of pharmaceutical prices: what do we know, and what does it mean?," Journal of Health Economics, Elsevier, vol. 19(2), pages 283-287, March.
    7. Z. John Lu & William S. Comanor, 1998. "Strategic Pricing Of New Pharmaceuticals," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 108-118, February.
    8. Vijay Krishna & Roberto Serrano, 1996. "Multilateral Bargaining," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 61-80.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Pharmaceuticals; Australia;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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