Informational Spillovers and Strategic Launch Delay of Pharmaceutical Drugs

27 Pages Posted: 15 Jun 2007

See all articles by Begoña Mariñoso

Begoña Mariñoso

Comisión del Mercado de las Telecomunicaciones (CMT)

Pau Olivella

Autonomous University of Barcelona - Department of Business Administration; International Health Economics Association (iHEA)

Date Written: November 20, 2006

Abstract

This paper analyzes informational spillovers in the pricing of drugs, which occur as a result of sequential launching. With sequential launches and asymmetric information about the production and distribution costs of a drug, the acceptation of a price where the drug is first launched might reveal the firm's private information to subsequent players. Information spillovers can be avoided by simultaneous launching in all countries. However, we identify conditions under which the firm can use launch delay and the consequent existence of spillovers to commit to the rejection of low prices. These conditions are: (i) the unit subsidy of drugs varies across countries; (ii) one of the countries has a larger aggregate demand and/or the firm is sufficiently patient (iii) the prior that countries hold about the firm being low cost takes intermediate values. If these conditions hold, a firm will chose to delay launch in the country with larger consumer copayment.

Keywords: Pharmaceutical drugs, pricing, launch delay, asymmetric information

JEL Classification: H51, I11

Suggested Citation

Mariñoso, Begoña and Olivella, Pau, Informational Spillovers and Strategic Launch Delay of Pharmaceutical Drugs (November 20, 2006). iHEA 2007 6th World Congress: Explorations in Health Economics Paper, Available at SSRN: https://ssrn.com/abstract=946395 or http://dx.doi.org/10.2139/ssrn.946395

Begoña Mariñoso

Comisión del Mercado de las Telecomunicaciones (CMT) ( email )

Carrer de la Marina 16-18
Barcelona, 08005
Spain

Pau Olivella (Contact Author)

Autonomous University of Barcelona - Department of Business Administration ( email )

Campus Bellaterra Edifici B.
Bellaterra (Barcelona), 08193
Spain
3493-581 2369 (Phone)
3493-581 24 61 (Fax)

International Health Economics Association (iHEA) ( email )

435 East Durham Street
Philadelphia, PA 19119
United States

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