An Economic Approach
Edited by Jaume Puig-Junoy
Chapter 3: Price regulation systems in the pharmaceutical market
3. Price regulation systems in the pharmaceutical market J. Puig-Junoy INTRODUCTION Three submarkets of the pharmaceutical market can be distinguished: innovative patented products sold by prescription, products whose patent has expired and are sold by prescription, and products sold without a prescription. The public regulation of prices in the first of these submarkets, and often also in the second, is a fact that can be observed in most Western countries, with certain notable exceptions such as the USA. Concern about the particular characteristics of the pharmaceutical market (for example, the existence of patents and the pharmaceutical industry’s rate of return), together with the desire to provide the majority of the population with access to medicines, regardless of their ability to pay (in many countries the public sector is the main buyer in this market), has led to the fairly widespread adoption of more or less strict price intervention and control policies for pharmaceuticals. Our aim in this chapter is to analyse the effects of price regulation of prescription drugs. First, we review the reasons traditionally given to justify price control policies from the viewpoint of economic theory. Then we describe the price control systems used in Europe, and particularly in Spain. This is followed by an analysis of the main advantages and disadvantages of the systems of direct price fixing, rate of return regulation and price-cap regulation, and they are compared with the optimal prices. Finally, we take a look at the prospects for deregulation and the encouragement of competition...
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