Pricing above value: Selling to a market with selection problems

Jan Boone

Journal of Health Economics, 2024, vol. 94, issue C

Abstract: This paper shows that selection incentives in downstream markets distort upstream prices. It is possible for inputs to be priced above the value that the good has for final consumers. We apply this idea to pharmaceutical companies selling drugs to a health insurance market with selection problems. We specify the conditions under which drugs are sold at prices exceeding treatment value. Another feature of the model is an excessive private incentive to reduce market size, e.g. in the form of personalized medicine.

Keywords: Selection; Pricing above value; Vertical relations; Pharmaceutical prices (search for similar items in EconPapers)
JEL-codes: I11 I13 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:94:y:2024:i:c:s0167629624000134

DOI: 10.1016/j.jhealeco.2024.102868

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