Price Trends

In the pharmaceutical industry, there is a relatively inelastic demand for medicine (OECD page 14).  The pricing is based on a free market concept, meaning there is no regulation, especially for over the counter drugs (OECD page 14). To set prices, The most commonly used methods involve comparing proposed prices for new products against those prices paid by other payers, a practice known as external price referencing, or against those prices already paid for products judged to be similar (OECD page 14). Profit controls, Pricing and regulation of the distribution chain is undertaken in many systems are also used (OECD page 14). For the people purchasing the products in the pharmaceutical industry, reference price systems are often used to set common reimbursement amounts, Consumers than pay an out-of-pocket difference on the products (OECD page 14). Pharmaceutical prices are also determined by market powers (OECD page 14). This means the perceived value of the product and competition from other companies. For example, a more well know company like mine, Pfizer, sets the price of many drugs because they are a well known brand with the consumers. Retail prices of pharmaceuticals also are affected by the country’s income (OECD page 10). This means higher income in the country can affect consumption positively. This means in the US there is a higher consumption of pharmaceuticals and resulting in higher prices and because it is inelastic expenditure changes with income, but not as fast (OECD page 10). Pricing is heavily determined by the company of the produced and not regulated in the US; some critics say it is too high and should be lowered for people to afford the medicine they might need to stay alive.

OECD Health Policy Studies Pharmaceutical Pricing Policies in a Global Market (pp.10-14) 2008. Received from  

http://www.oecd-ilibrary.org/docserver/download/fulltext/8108041e.pdf?expires=1351113230&id=id&accname=ocid194320&checksum=F374541A8A30BEA51FC5D5423D7C3230