The Determinants of Pricing in Pharmaceuticals: Are U.S. Prices Really Higher than Those of Canada?

32 Pages Posted: 26 Jul 2007

See all articles by Antonio Cabrales

Antonio Cabrales

University College London - Department of Economics

Sergi Jimenez-Martin

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: April 2007

Abstract

This paper studies price determination in pharmaceutical markets using data for 25 countries, six years and a comprehensive list of products from the MIDAS IMS database. We show that market power and the quality of the product has a significantly positive impact of prices. The nationality of the producer appears to have a small and often insignificant impact on prices, which suggests that countries which regulates prices have relatively little power to do it in a way that advances narrow national interest. We produce a theoretical explanation for this phenomenon based on the fact that low negotiated prices in a country would have a knock-on effect in other markets, and is thus strongly resisted by producers. Another key finding is that the U.S. has prices that are not significantly higher than those of countries with similar income levels. This, together with the former observation on the effect of the nationality of producers casts doubt on the ability of countries to pursue "free-riding" regulation.

Keywords: Pharmaceutical prices

JEL Classification: I10, I18, L18, L65

Suggested Citation

Cabrales, Antonio and Jimenez-Martin, Sergi, The Determinants of Pricing in Pharmaceuticals: Are U.S. Prices Really Higher than Those of Canada? (April 2007). Available at SSRN: https://ssrn.com/abstract=1003132 or http://dx.doi.org/10.2139/ssrn.1003132

Antonio Cabrales

University College London - Department of Economics ( email )

Drayton House, 30 Gordon Street
30 Gordon Street
London, WC1H 0AX
United Kingdom

Sergi Jimenez-Martin (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34) 93 542 16 67 (Phone)
(34) 93 542 17 46 (Fax)

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