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

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

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

  • Ernst R. Berndt
Journal of Economic Perspectives
vol. 16, no. 4, Fall 2002
(pp. 45–66)
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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.

Citation

Berndt, Ernst, R. 2002. "Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price ." Journal of Economic Perspectives, 16 (4): 45–66. DOI: 10.1257/089533002320950975

JEL Classification

  • I11 Analysis of Health Care Markets
  • L65 Chemicals; Rubber; Drugs; Biotechnology
  • I18 Health: Government Policy; Regulation; Public Health
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