HÂþ»­

Iman Nosoohi, Rowe School of Business

On the effects of government policies to improve affordability in pharmaceutical markets

With Harish Krishnan, University of British Columbia

Pharmaceutical firms use price differentiation as a strategy to increase their revenue from rich and poor countries. For example, insulin, statins, antibiotics and HIV-AIDS drugs are distributed in different countries at different prices. Government agencies try to provide more affordable drugs for their citizens by using policies such as reference pricing, sales rebates and subsidy plans. Motivated by these policies, in this research we study their effects on expected sales as a measure of affordability. Since government agencies, such as Medicare, usually have budget constraints, it is important to find out which policies can be more effective at improving affordability. We also observe grey markets or parallel imports in pharmaceutical markets, where a third party buys products from a low-price market and sells them in another market at higher prices. Grey markets in pharmaceuticals have grown so rapidly that some U.S. pharmacies sell their entire inventories to grey marketeers. Nevertheless, there are countries such as Canada, Russia and Brazil that limit importing drugs from other countries because of healthcare differences, economic reasons or political concerns. Thus, we investigate effects of government policies on both the presence and absence of parallel imports. Managing drug prices is a complex task as there are several parties, such as pharmaceutical firms and government agencies, each with their own interests. Therefore, in addition to expected sales, we will also compare government policies from social welfare perspectives.