Working Paper: NBER ID: w17174
Authors: Patricia M. Danzon; Andrew W. Mulcahy; Adrian K. Towse
Abstract: This paper analyzes determinants of ex-manufacturer prices for originator and generic drugs across a large sample of countries. We focus on drugs to treat HIV/AIDS, TB and malaria in middle and low income countries (MLICs), with robustness checks to other therapeutic categories and other countries. We examine effects of per capita income, income dispersion, number and type of therapeutic and generic competitors, and whether the drugs are sold to retail pharmacies vs. tendered procurement by NGOs. \n \nThe cross-national income elasticity of prices is 0.4 across high and low income countries, but is only 0.15 between MLICs, implying that drugs are least affordable relative to income in the lowest income countries. Within-country income inequality contributes to relatively high prices in MLICs. Number of therapeutic and generic competitors only weakly affects prices to retail pharmacies, plausibly because uncertain quality leads to competition on brand rather than price. Tendered procurement attracts multi-national generic suppliers and significantly reduces prices for originators and generics, compared to prices to retail pharmacies.
Keywords: Pharmaceutical Pricing; Emerging Markets; Income Elasticity; Competition; Procurement
JEL Codes: I11; L11; O14; O25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lower income (D31) | Higher relative prices for pharmaceuticals (H51) |
| Within-country income inequality (D31) | Higher prices in MLICs (P22) |
| Number of therapeutic and generic competitors (L65) | Prices to retail pharmacies (L42) |
| Tendered procurement (H57) | Lower prices for originators (G19) |
| Tendered procurement (H57) | Lower prices for generics (D49) |
| Number of originator competitors (L19) | Prices (D49) |