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PharmacoEconomics

, Volume 36, Issue 12, pp 1395–1405 | Cite as

Differential Pricing of Pharmaceuticals: Theory, Evidence and Emerging Issues

  • Patricia M. DanzonEmail author
Current Opinion

Abstract

Differential pricing—manufacturers varying prices for on-patent pharmaceuticals across markets—can, in theory, lead to increased patient access and improved research and development (R&D) incentives compared with charging a uniform price across markets. Theoretical models of price discrimination and Ramsey pricing support differentials based inversely on price elasticities, which are plausibly related to average per capita income. However, these models do not address absolute price levels and dynamic efficiency. Value-based differential pricing theory incorporates insurance coverage and addresses static and dynamic efficiency. Limited empirical evidence indicates a weak positive relationship between prices and gross domestic product (GDP) per capita. External referencing and parallel trade undermine differential pricing. We discuss previously neglected factors that undermine differential pricing in practice. High price growth relative to GDP in the USA leads to widening differentials between the USA and other countries. Concerns over the effects of confidential rebating challenges acceptance of this approach to implementing price differentials. The growth of branded generics in low- and middle-income countries leads to complex markets with product and price differentiation.

Notes

Compliance with Ethical Standards

Funding

No sources of funding were used to conduct this study or prepare this manuscript.

Conflicts of Interest

Patricia M. Danzon and the Celia Moh Foundation have no conflicts of interest that are directly relevant to the content of this article.

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Copyright information

© Springer Nature Switzerland AG 2018

Authors and Affiliations

  1. 1.Celia Moh Professor Emeritus, Health Care Management Department, The Wharton SchoolUniversity of PennsylvaniaPhiladelphiaUSA

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