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Pricing Behavior of the Ethical Pharmaceutical Industry

1974; University of Chicago Press; Volume: 47; Issue: 3 Linguagem: Inglês

10.1086/295650

1537-5374

Douglas L. Cocks, John R. Virts,

Pharmaceutical Economics and Policy

The behavior of individual product prices has been an important element of economic analysis on both a macro and micro basis. An important concern on the macro level involves the administered price thesis that was first elucidated and developed by Gardiner Means.' This concern centers around the idea that when an economy has many large firms these firms set their prices by administrative fiat, and they do not adhere to the dictates of a market. This may lead to economic inefficiencies which it is felt could ble a cause of inflation.2 On the micro level, pricing behavior is considered to be an important aspect of any industry.3 It is the purpose of this paper to ascertain the pricing behavior of the ethical pharmaceutical industry as it effects retail prices. The actual transaction prices of 107 leading products over a 10-year period are observed. Due to the number of existing ethical drug products, it is necessary to group them into manageable sets of products in order to look at their pricing characteristics. This was done by observing the way physicians actually use various products in treating disease. The therapeutic-class concept, as developed by market-research firms that serve the drug industry, has been the traditional means of grouping various drugs into a set of products. It is felt for the purposes of this study that these therapeutic classes would be too limiting and would not provide a broad enough base of products to properly represent the pricing characteristics of the bulk of the industry's products. The method of grouping used in this study is to align therapeutic classes or subclasses as it appears they may be used as alternatives. Thus, if there are three therapeutic classes A, B, and C, and it appears that