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Taking the competitor’s pill: when combination therapies enter pharmaceutical markets

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Abstract

We study the competitive effects of combination therapies in pharmaceutical markets, which crucially hinge on the additional therapeutic value of combinatory use of drugs and the therapeutic substitutability with the most relevant monotherapy. With large additional therapeutic value, the introduction of combination therapies leads to higher prices and, somewhat paradoxically, may reduce the health plan's surplus. Although combination therapies imply that drugs become both substitutes and complements, we show that drug prices increase if the firms are allowed to coordinate their prices. Allowing for price discrimination might increase allocational efficiency, but only at the expense of higher purchasing costs.

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  • Brekke, Kurt R. & Dalen, Dag Morten & Straume, Odd Rune, 2023. "Taking the competitor’s pill: when combination therapies enter pharmaceutical markets," Discussion Paper Series in Economics 19/2023, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2023_019
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    1. Bardey, David & Jullien, Bruno & Lozachmeur, Jean-Marie, 2016. "Health insurance and diversity of treatment," Journal of Health Economics, Elsevier, vol. 47(C), pages 50-63.
    2. González, Paula & Macho-Stadler, Inés & Pérez-Castrillo, David, 2016. "Private versus social incentives for pharmaceutical innovation," Journal of Health Economics, Elsevier, vol. 50(C), pages 286-297.
    3. Bardey, D. & Bommier, A. & Jullien, B., 2010. "Retail price regulation and innovation: Reference pricing in the pharmaceutical industry," Journal of Health Economics, Elsevier, vol. 29(2), pages 303-316, March.
    4. Dankó, D. & Blay, J-Y. & Garrison, L.P., 2019. "Challenges in the value assessment, pricing and funding of targeted combination therapies in oncology," Health Policy, Elsevier, vol. 123(12), pages 1230-1236.
    5. Ulf Persson & J. M. Norlin, 2018. "Multi-indication and Combination Pricing and Reimbursement of Pharmaceuticals: Opportunities for Improved Health Care through Faster Uptake of New Innovations," Applied Health Economics and Health Policy, Springer, vol. 16(2), pages 157-165, April.
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    More about this item

    Keywords

    Pharmaceutical markets; Combination therapies; Therapeutic competition;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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