Pierre Dubois, Morten Sæthre, 04 July 2020

Differences in regulated pharmaceutical prices within the European Economic Area create arbitrage opportunities that pharmacy retailers can access through parallel imports. For prescription drugs under patent, parallel trade affects the sharing of profits among an innovating pharmaceutical company, retailers, and parallel traders. This column discusses recent findings showing that in a country which does not regulate pharmacy retailers’ margins, retailer incentives to bargain lower wholesale prices play a significant role in fostering parallel trade penetration, and that banning parallel imports would benefit manufacturers.

Michael Kremer, Christopher Snyder, Fanele Mashwama, 10 May 2019

Consumers pay more for many pharmaceuticals in the US than in most other countries. This column investigates the welfare implications of such price discrimination using demand curves for HIV pharmaceuticals. A ban on price discrimination exacerbates the potentially large deadweight loss in the market for either a drug or a vaccine. However, this loss is ameliorated by a small government subsidy.

Margaret Kyle, Heidi Williams, 22 May 2017

Despite higher per capita healthcare spending, US health outcomes compare poorly with other developed nations. One potential reason is that the US healthcare system creates incentives that promote the faster adoption of medical technologies with minimal benefits. This column tests this claim using data on the quality and diffusion of new pharmaceuticals in the US and four other countries. The results suggest that compared to Australia, Canada, Switzerland, and the UK, low-quality drugs diffuse more quickly in the US relative to high-quality drugs.

Michael Kremer, Christopher Snyder, Natalia Drozdoff, 29 January 2016

Many observers believe that pharmaceutical firms prefer to invest in drugs to treat diseases rather than vaccines. This column presents an economic rationale for why such a pattern may emerge for diseases like HIV/AIDS. The population risk of such diseases resembles a Zipf distribution, which makes the shape of the demand curve for a drug more conducive to revenue extraction than for a vaccine. Based on revenue calibrations using US data on HIV risk, the revenue from a drug is about four times greater.

Rena Conti, Ernst Berndt, David Howard, 25 March 2015

Total US prescription drug spending rose 13% in 2014, the biggest increase in a decade. Driving this trend is spending on branded specialty drugs, which rose an unprecedented 31%. This column discusses recent research into the relationship between inflation-adjusted launch prices and survival benefits and approval year for 58 anticancer drugs approved in the US between 1995 and 2013. The authors find that launch prices are going up by $8,500 per year, approximately 12% year over year.

Iain Cockburn, Jean Lanjouw, Mark Schankerman, 22 November 2014

Patented pharmaceuticals diffuse across international borders slowly, and sometimes not at all. This column analyses the effect of patent protection and price regulation on the speed of and extent to which drugs enter new markets. There is a fundamental tradeoff between affordability – taking the form of low patent protection and strong price regulation – and rate of entry into a national market.

Amir Attaran, Roger Bate, Ginger Jin, Aparna Mathur, 09 October 2014

There is a perception amongst pharmaceutical experts that some Indian manufacturers and/or their distributors segment the global medicine market into portions that are served by different quality medicines. This column finds that drug quality is poorer among Indian-labelled drugs purchased inside African countries than among those purchased inside India or middle-income countries. Substandard drugs – non-registered in Africa and containing insufficient amounts of the active ingredient – are the biggest driver of this quality difference.

Daniel Bennett, Wes Yin, 14 August 2014

Many drugs sold in poor countries are counterfeit or substandard, endangering patients’ health and fostering drug resistance. Since drug quality is difficult to observe, pharmacies in weakly regulated markets may have little incentive to improve quality. However, larger markets allow firms to reorganise production and invest in technologies that reduce the marginal cost of quality. This column discusses how the entry of a new pharmacy chain in India led incumbents to both cut prices and raise drug quality.

Joan Costa-Font, Alistair McGuire, Nebibe Varol, 10 May 2014

Generic medicines are cheaper than their branded counterparts, offering potential savings in healthcare budgets. Medicine-price regulation plays an important role in the expansion of the market for generic medicines. This column presents new evidence that higher levels of price regulation, by lowering the expected price to generic manufacturers, lead (ceteris paribus) to greater delays in generic entry.

Joan Costa-Font, Nebibe Varol, Alistair McGuire, 08 July 2011

Pharmaceutical price regulations make drugs more accessible to consumers – if the products are brought to market. This column explores how price regulation affects the diffusion of pharmaceutical treatments. It finds that more regulated, lower-price markets experience the longest delays in launching new medications.

Dhaval Dave, 03 June 2010

As a result of changes in regulation in the late 1990s, spending on direct-to-consumer advertising of pharmaceutical drugs in the US leapt from $150 million in 1993 to $4.24 billion in 2005. This column examines the effect on demand, finding that broadcast advertising was responsible for 18% of the overall increase in prescription drug expenditures in the US during the period.

Frank Lichtenberg, Gautier Duflos, 29 June 2008

Critics allege that many new drugs are borne more from marketing efforts than medical innovation. This column discusses new research showing that the average new drug extends life.

Antonio Cabrales, 21 June 2007

Regulating prices in the pharmaceutical markets can be rather ineffective from a welfare-enhancing viewpoint and the US, despite its complaints, does not seem to have significantly higher prices than other countries with similar income levels.


CEPR Policy Research