Abstract
Economics developed a set of three degrees of price discrimination dependent on whether the seller targets individuals or groups, and whether buyers wish to use quantity rebates. The seller’s reason to price discriminate is to capture as much of the buyers utility surplus. Price discrimination is deemed unfair and immoral, and this is especially so in the market for pharmaceutical therapies. However, sometimes it can indeed be socially useful to price discriminate as the practice, under circumstances, enhances efficiency and social welfare.
The market for pharmaceuticals is a non-typical market as irreversible costs of research and development form the brunt of the cost structure. As pharmaceutical companies are driven by profit and bounded by patent expiration dates, discriminatory pricing schemes are necessary to recover investment costs of research and development as quickly as possible. The first degree of price discrimination consists of perfect, individually targeted, price/quality combinations that fully extract consumers’ surplus. The second-degree price discrimination consists of quantity rebates. The third degree of price discrimination is based on group targeting according to the group average willingness to pay.
We introduce a fourth degree of price discrimination based on qualitative features of pharmaceuticals on a market for antiviral drugs. We use the SVR as an example of quality differentials causing market price differentials. The fourth type of discrimination would be of particular interest to the pharmaceutical industry and health management organisations as it introduces non-linear price-quality combinations.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
An opportunity cost is the cost of the next best alternative. For more on opportunity costs see Mance et al. (2015a).
- 2.
For a survey on European pricing schemes, see: Garattini et al. (2016).
- 3.
- 4.
Ge et al. (2009).
- 5.
Mance et al. (2015b).
- 6.
Mance et al. (2016a).
- 7.
- 8.
Mance et al. (2016a).
- 9.
Carlton and Perloff (2000).
- 10.
For a comprehensive survey on the application of EU competition law in the pharmaceutical sector, see Hull and Clancy (2016).
- 11.
Elek et al. (2017).
- 12.
For a comprehensive survey of price agreements in the EU pharmaceutical sector, see Van de Vooren et al. (2015).
- 13.
Mance et al. (2016b).
References
Bodiroga-Vukobrat N, Horak H (2016) Challenges of personalized medicine: socio-legal disputes and possible solutions. In: Bodiroga-Vukobrat N, Rukavina D, Pavelić K, Sander GG (eds) Personalized medicine: a new medical and social challenge. Springer, Basel, pp 31–51. ISBN 978-3-319-39347-6
Carlton DW, Perloff JM (2000) Modern industrial organization, 3rd edn. Addison Wesley Longman, Boston
Croatian Health Insurance Fund. Medication lists (June 2016). Available from: http://www.hzzo.hr/zdravstveni-sustav-rh/trazilica-za-lijekove-s-vazecih-lista/arhiva-liste-lijekova/
Elek P, Takács E, Merész G, Kaló Z (2017) Implication of external price referencing and parallel trade on pharmaceutical expenditure: indirect evidence from lower-income European countries. Health Policy Plan 32(3):349–358
Garattini L, Curto A, Freemantle N (2016) Pharmaceutical price schemes in Europe: time for a ‘continental’ one? PharmacoEconomics 34:423–426
Ge D, Fellay J, Thompson AJ, Simon JS, Shianna KV, Urban TJ, Heinzen EL, Qiu P, Bertelsen AH, Muir AJ, Sulkowski M, McHutchison JG, Goldstein DB (2009) Genetic variation in IL28B predicts hepatitis C treatment-induced viral clearance. Nature 461(7262):399–401
Hrstić I, Ostojić R (2013) Treatment of non-1 genotype chronic hepatitis C patients. Acta Med Croatica 67:339–343
Hull DW, Clancy MJ (2016) The application of EU competition law in the pharmaceutical sector. J Eur Compet Law Practice 7(2):150–161
Mance D, Vretenar N, Katunar J (2015a) Opportunity cost classification of goods and markets. Int Public Adm Rev XIII(1):119–134
Mance D, Mance D, Vitezić D (2015b) Introduction of new combination therapy for treatment of experienced HCV GT1 patients: budget impact analysis, the Croatian perspective. Value Health 18(7):A623–A623
Mance D, Mance D, Vitezić D (2016a) Incremental cost-effectiveness pharmacoeconomic assessment of hepatitis C virus therapy: an approach for less wealthy members of the common market. Croat Med J 57(6):582–590
Mance D, Mance D, Vitezić D (2016b) Pharmaceutical pricing: how much for the risk of non-cure? Clin Ther 38(10):17–18
Pavelić K, Kraljević Pavelić S, Sedić M (2016) Personalized medicine: the path to new medicine. In: Bodiroga-Vukobrat N, Rukavina D, Pavelić K, Sander GG (eds) Personalized medicine: a new medical and social challenge. Springer, Basel, pp 1–21
Poropat G, Milić D, Štimac D (2016) Contemporary approach to chronic hepatitis C. Medicina Fluminensis 1:4–13. [in Croatian]
Porter ME (2010) What is value in health care? N Engl J Med 363(26):2477–2481
U.S. Food and Drug Administration (2013) Paving the way for personalized medicine: FDA’s role in a new era of medical product development
Van de Vooren K, Curto A, Freemantle N, Garattini L (2015) Market-access agreements for anti-cancer drugs. J R Soc Med 108(5):166–170
Vitezić D, Božina D, Mršić-Pelčić J, Erdeljić Turk V, Francetić I (2016a) Personalized medicine in clinical pharmacology. In: Bodiroga-Vukobrat N, Rukavina D, Pavelić K, Sander GG (eds) Personalized medicine: a new medical and social challenge. Springer, Basel, pp 265–278. ISBN 978-3-319-39347-6
Vitezić D, Mance D, Mance D, Vitezić M, Mršić Pelčić J (2016b) Treatment of chronic hepatitis C virus genotype 1 infection: comparison of health-economic outcomes for Naïve patients. Value Health 19(3):A314–A314
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2019 Springer Nature Switzerland AG
About this chapter
Cite this chapter
Mance, D., Mance, D., Vitezić, D. (2019). Personalized Medicine and Personalized Pricing: Degrees of Price Discrimination. In: Bodiroga-Vukobrat, N., Rukavina, D., Pavelić, K., Sander, G.G. (eds) Personalized Medicine in Healthcare Systems. Europeanization and Globalization, vol 5. Springer, Cham. https://doi.org/10.1007/978-3-030-16465-2_14
Download citation
DOI: https://doi.org/10.1007/978-3-030-16465-2_14
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-16464-5
Online ISBN: 978-3-030-16465-2
eBook Packages: Law and CriminologyLaw and Criminology (R0)