Biomaterial Database

Endogenous versus exogenous generic reference pricing for pharmaceuticals. 2017

F Antoñanzas, and C A Juárez-Castelló, and R Rodríguez-Ibeas

Department of Economics, University of La Rioja, 26004, Logroño, Spain.

In this paper we carry out a vertical differentiation duopoly model applied to pharmaceutical markets to analyze how endogenous and exogenous generic reference pricing influence competition between generic and branded drugs producers. Unlike the literature, we characterize for the exogenous case the equilibrium prices for all feasible relevant reference prices. Competition is enhanced after the introduction of a reference pricing system. We also compare both reference pricing systems on welfare grounds, assuming two different objective functions for health authorities: (i) standard social welfare and (ii) gross consumer surplus net of total pharmaceutical expenditures. We show that regardless of the objective function, health authorities will never choose endogenous reference pricing. When health authorities are paternalistic, the exogenous reference price that maximizes standard social welfare is such that the price of the generic drug is the reference price while the price of the branded drug is higher than the reference price. When health authorities are not paternalistic, the optimal exogenous reference price is such that the price of the branded drug is the reference price while the price of the generic drug is lower than the reference price.

UI	MeSH Term	Description	Entries
D003365	Costs and Cost Analysis	Absolute, comparative, or differential costs pertaining to services, institutions, resources, etc., or the analysis and study of these costs.	Affordability,Analysis, Cost,Cost,Cost Analysis,Cost Comparison,Cost Measures,Cost-Minimization Analysis,Costs and Cost Analyses,Costs, Cost Analysis,Pricing,Affordabilities,Analyses, Cost,Analyses, Cost-Minimization,Analysis, Cost-Minimization,Comparison, Cost,Comparisons, Cost,Cost Analyses,Cost Comparisons,Cost Measure,Cost Minimization Analysis,Cost, Cost Analysis,Cost-Minimization Analyses,Costs,Measure, Cost,Measures, Cost
D004465	Economic Competition	The effort of two or more parties to secure the business of a third party by offering, usually under fair or equitable rules of business practice, the most favorable terms.	Competition, Economic,Competitions, Economic,Economic Competitions
D006801	Humans	Members of the species Homo sapiens.	Homo sapiens,Man (Taxonomy),Human,Man, Modern,Modern Man
D012946	Social Welfare	Organized institutions which provide services to ameliorate conditions of need or social pathology in the community.	Community Services,Services, Community,Community Service,Service, Community,Welfare, Social
D014481	United States	A country in NORTH AMERICA between CANADA and MEXICO.
D016527	Drug Costs	The amount that a health care institution or organization pays for its drugs. It is one component of the final price that is charged to the consumer (FEES, PHARMACEUTICAL or PRESCRIPTION FEES).	Cost, Drug,Costs, Drug,Drug Cost
D016568	Drugs, Generic	Drugs whose drug name is not protected by a trademark. They may be manufactured by several companies.	Drugs, Nonproprietary,Generic Drug,Generic Drugs,Drug, Generic,Nonproprietary Drugs
D017059	Models, Econometric	The application of mathematical formulas and statistical techniques to the testing and quantifying of economic theories and the solution of economic problems.	Econometric Models,Econometric Model,Model, Econometric
D026706	Paternalism	Interference with the FREEDOM or PERSONAL AUTONOMY of another person, with justifications referring to the promotion of the person's good or the prevention of harm to the person. (from Cambridge Dictionary of Philosophy, 1995); more generally, not allowing a person to make decisions on his or her own behalf.