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

Author: Berndt, Ernst R.

Source: The Journal of Economic Perspectives, Volume 16, Number 4, 1 November 2002 , pp. 45-66(22)

Publisher: American Economic Association

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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.

Document Type: Research article

DOI: http://dx.doi.org/10.1257/089533002320950975

Publication date: 2002-11-01

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The Journal of Economic Perspectives (JEP) attempts to fill a gap between the general interest press and most other academic economics journals. The journal aims to publish articles that will serve several goals: to synthesize and integrate lessons learned from active lines of economic research; to provide economic analysis of public policy issues; to encourage cross-fertilization of ideas among the fields of thinking; to offer readers an accessible source for state-of-the-art economic thinking; to suggest directions for future research; to provide insights and readings for classroom use; and to address issues relating to the economics profession.
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