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Pharmaceutical Prices and Political Activity


  • Sara Fisher Ellison
  • Catherine Wolfram


Drug prices have been a conspicuous political issue in much of recent history, but no more so than during health care reform debates in 1993 and 1994. This paper investigates possible effects of political activity on pharmaceutical prices, with a particular focus on the health care reform period. It evaluates the extent to which pharmaceutical companies slowed the rates at which they increased prices in an attempt to preempt government intervention. To do so, we characterize companies based on their vulnerability to future price regulation. We then consider patterns in price movements across companies. The results suggest that companies whose drugs had longer patent lives and who had recently increased contributions to their corporate Political Action Committees (PACs) slowed price increases during 1992 and 1994 more than their competitors. It is difficult to distinguish pricing differences across companies in 1993, perhaps because most companies had pledged to keep price increases below the rate of inflation.

Suggested Citation

  • Sara Fisher Ellison & Catherine Wolfram, 2001. "Pharmaceutical Prices and Political Activity," NBER Working Papers 8482, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8482
    Note: IO

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    References listed on IDEAS

    1. Ernst R. Berndt & Linda T. Bui & David H. Lucking-Reiley & Glen L. Urban, 1996. "The Roles of Marketing, Product Quality, and Price Competition in the Growth and Composition of the U.S. Antiulcer Drug Industry," NBER Chapters,in: The Economics of New Goods, pages 277-328 National Bureau of Economic Research, Inc.
    2. David P. Baron, 1997. "Integrated Strategy and International Trade Disputes: The Kodak-Fujifilm Case," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 291-346, June.
    3. Ellison, Sara Fisher & Mullin, Wallace P, 2001. "Gradual Incorporation of Information: Pharmaceutical Stocks and the Evolution of President Clinton's Health Care Reform," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 89-129, April.
    4. Block, Michael Kent & Nold, Frederick Carl, 1981. "The Deterrent Effect of Antitrust Enforcement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 429-445, June.
    5. Berndt, Ernst R & Griliches, Zvi & Rosett, Joshua G, 1993. "Auditing the Producer Price Index: Micro Evidence from Prescription Pharamceutical Preparations," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(3), pages 251-264, July.
    6. Amihai Glazer & Henry McMillan, 1992. "Pricing by the Firm Under Regulatory Threat," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 1089-1099.
    7. Glenn Ellison & Sara Fisher Ellison, 2011. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 1-36, February.
    8. Esty, Daniel C & Caves, Richard E, 1983. "Market Structure and Political Influence: New Data on Political Expenditures, Activity, and Success," Economic Inquiry, Western Economic Association International, vol. 21(1), pages 24-38, January.
    9. Berndt Ernst R. & Cockburn Iain M. & Cocks Douglas L. & Epstein Arnold M. & Griliches Zvi, 1998. "Is Price Inflation Different for the Elderly? An Empirical Analysis of Prescription Drugs," Forum for Health Economics & Policy, De Gruyter, vol. 1(1), pages 1-45, January.
    10. Sara Fisher Ellison, 1998. "What Prices Can Tell Us about the Market for Antibiotics," Working papers 98-10, Massachusetts Institute of Technology (MIT), Department of Economics.
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    Cited by:

    1. Joseph Golec & Shantaram Hegde & John A. Vernon, 2005. "Pharmaceutical Stock Price Reactions to Price Constraint Threats and Firm-Level R&D Spending," NBER Working Papers 11229, National Bureau of Economic Research, Inc.
    2. Vernon, John A. & Golec, Joseph H. & Lutter, Randall & Nardinelli, Clark, 2009. "An exploratory study of FDA new drug review times, prescription drug user fee acts, and R&D spending," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(4), pages 1260-1274, November.
    3. Dennis Coates & Bonnie Wilson, 2007. "Interest group activity and long-run stock market performance," Public Choice, Springer, vol. 133(3), pages 343-358, December.
    4. Pierre Azoulay, 2003. "Acquiring Knowledge Within and Across Firm Boundaries: Evidence from Clinical Development," NBER Working Papers 10083, National Bureau of Economic Research, Inc.
    5. A. Spithoven, 2009. "Why U.S. health care expenditure and ranking on health care indicators are so different from Canada’s," International Journal of Health Economics and Management, Springer, vol. 9(1), pages 1-24, March.

    More about this item

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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