Global pharmaceutical pricing strategies: profit implications of price discounting

Christopher J. Longo

International Journal of Economics and Business Research, 2010, vol. 2, issue 6, 447-460

Abstract: Global pharmaceutical pricing strategies have been debated in published literature; however, these debates have not accounted for the differences in elasticity of demand between the public, private and cash paying markets. A mathematical model is presented that explores several plausible scenarios for global pharmaceutical profit by highlighting the differences between regulated (highest percentage public financing) vs. unregulated (highest percentage private financing) marketplaces. The model identifies different short-run demand dynamics based on the mix of public, private and cash paying purchases using an example of a new entry by a single firm in an established therapeutic area. Analyses suggest that when the price elasticity of demand exceeds −0.21 (published range: −0.12 to −0.80), while holding other variables within plausible ranges, a 10% price decrease results in a net increase in global profit under several scenarios. The model suggests that under certain conditions it may prove advantageous for a pharmaceutical company to consider global price discounting.

Keywords: pharmaceutical industry; price elasticity; global pricing; price discounting; public markets; private markets; global profits; pricing strategies; profitability; globalisation; cash markets; regulated marketplaces; unregulated marketplaces; regulation; public financing; private financing; finance; short-run demand dynamics; purchasing; therapeutic medicines; price decrease; increased profits; restricted markets; unrestricted markets; United States; USA; France; Germany; UK; United Kingdom; Italy; Canada; Australia; pharmaceutical pricing; mathematical modelling. (search for similar items in EconPapers)
Date: 2010
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