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Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price

Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price Abstract The U.S. pharmaceutical industry has again become the focus of considerable controversy. In understanding the economics underlying this industry, distinctions between short, medium and long-run costs are critical, as is that between economic and accounting costs. Consumers' heterogeneous valuations create strong incentives for non-uniform pricing and targeted marketing. The conflict between static efficiency (price new drugs low, near short-run marginal cost) and dynamic efficiency (price new drugs high, maintain incentives for innovation) is deep and enduring. This trade-off is becoming more severe as the relative costs of bringing new drugs to market have increased sharply. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Perspectives American Economic Association

Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price

Berndt, Ernst R
Journal of Economic Perspectives , Volume 16 (4) – Dec 1, 2002
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Publisher
American Economic Association
Copyright
Copyright © 2002 by the American Economic Association
Subject
Symposia
ISSN
0895-3309
DOI
10.1257/089533002320950975
Publisher site
See Article on Publisher Site

Abstract

Abstract The U.S. pharmaceutical industry has again become the focus of considerable controversy. In understanding the economics underlying this industry, distinctions between short, medium and long-run costs are critical, as is that between economic and accounting costs. Consumers' heterogeneous valuations create strong incentives for non-uniform pricing and targeted marketing. The conflict between static efficiency (price new drugs low, near short-run marginal cost) and dynamic efficiency (price new drugs high, maintain incentives for innovation) is deep and enduring. This trade-off is becoming more severe as the relative costs of bringing new drugs to market have increased sharply.

Journal

Journal of Economic Perspectives – American Economic Association

Published: Dec 1, 2002

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