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Health Econ. 2015 Aug;24(8):966-77. doi: 10.1002/hec.3075. Epub 2014 Jul 2.

Price-cap Regulation, Uncertainty and the Price Evolution of New Pharmaceuticals.

Author information

1
University of Calgary, Department of Economics, Alberta, Canada.

Abstract

This paper examines the effect of the regulations restricting price increases on the evolution of pharmaceutical prices. A novel theoretical model shows that this policy leads firms to price new drugs with uncertain demand above the expected value initially. Price decreases after drug launch are more likely, the higher the uncertainty. We empirically test the model's predictions using data from the Canadian pharmaceutical market. The level of uncertainty is shown to play a crucial role in drug pricing strategies.

KEYWORDS:

new pharmaceuticals; price evolution; price-cap regulation; pricing strategies; uncertainty

PMID:
24990225
DOI:
10.1002/hec.3075
[Indexed for MEDLINE]

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