Title: An empirical model of drug pricing and competition: a dynamic perspective

Authors: Rodrigo Refoios Camejo; Clare McGrath; Frans F.H. Rutten

Addresses: Erasmus University Rotterdam, Institute of Health Policy and Management, Erasmus Medical Centre, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands ' AstraZeneca, HTA Policy and Payer Evidence, Mereside, Alderley Park, Macclesfield, Cheshire, SK10 4TG, UK ' Erasmus University Rotterdam, Institute of Health Policy and Management, Erasmus Medical Centre, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands

Abstract: In this study we test the impact of competition and other market attributes on the pricing of pharmaceuticals. Three decades worth of market and pricing data were collected and the market for lipid-lowering agents used as a case study. Panel data and cross sectional methods were applied to develop two distinct econometric models: one dynamic longitudinal model continuously following molecules' prices; and one static launch price model considering market conditions at time of launch. The results show a consistent element of price competition reflected both in the launch price of new drugs and in the price observed throughout the molecules' lifecycle. Prices vary greatly depending on market conditions such as the number of competitors, the degree of market concentration, and the existence of generic versions of the molecule. The results also show that a dual competition model is in place with market attributes affecting prices differently depending on the therapeutic proximity of available competitors.

Keywords: pharmaceutical pricing; pharmaceutical policy; competition; drug development; lifecycle pricing; pricing regulation; drug pricing; pharmaceutical industry; econometric models; modelling; new drugs.

DOI: 10.1504/IJEBR.2013.055538

International Journal of Economics and Business Research, 2013 Vol.6 No.2, pp.173 - 193

Published online: 30 Dec 2013 *

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