Therapeutic reference pricing and drug innovation incentives

Odd Rune Straume

Economics Letters, 2023, vol. 222, issue C

Abstract: Therapeutic reference pricing (TRP) of pharmaceuticals is widely thought to steer drug innovation incentives away from ‘me-too’ innovations with little therapeutic benefit. However, the present paper shows that, if the feasible scope for innovation is to develop drugs with different degrees of differentiation from existing drugs within the same therapeutic class, TRP reduces innovating firms’ incentives for therapeutic differentiation and leads to entry of drugs that are less differentiated from the existing drugs in the market. In this case, the pro-competitive effects of TRP are reinforced by changes in innovation incentives. On the other hand, TRP leads to lower health benefits unless incentives for therapeutic differentiation are excessively strong in the first place.

Keywords: Therapeutic reference pricing; Drug innovation; Therapeutic competition (search for similar items in EconPapers)
JEL-codes: I11 I18 L13 L51 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176522004190
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:222:y:2023:i:c:s0165176522004190

DOI: 10.1016/j.econlet.2022.110945

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().