Market closing and/or market contraction: Potential consequences of multinationals' inability to price discriminate. An analysis of European Union pharmaceutical pricing
European Union Member States seeking to control their health care expenditures and pharmaceutical multinationals seeking to maximize profit have struggled with the marketing and pricing of international-branded ethical pharmaceuticals. In addressing this conflict, the EU Commission has argued for greater "price transparency" across EU Member States with the stated policy objective of price convergence to an EU uniform price. The issue is what has been the effect of this policy objective on EU Member States; specifically, whether it has encouraged national price increases in the lower-income EU Member States (encouraging market closing because the price is too high to equitably service the lower-income EU Member States) and/or encouraged national price decreases in the higher-income EU Member States (encouraging market contraction because pharmaceutical multinationals fail to generate the revenue and profits to invest in the research and development of new products). To address this important issue, this study analyzed the complete Anatomical Therapeutic Classification (ATC) of Cardiovascular Beta-Adrenergic Blocking Agents, Plain (ATC C7A) for the twelve year period 1985 to 1996 for the following ten EU Member States (hereinafter referred to as the EU-10): Belgium, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, and the U.K. (An annual EU-10 product price was calculated and this EU-10 product price served as the numeraire or reference country). Specific calculations completed included annual per capita expenditures and national price levels at international prices. The calculation of per capita expenditures and national price levels at international prices required the calculation of purchasing power parities (PPPs). PPPs have not been used extensively in previous international pharmaceutical price studies. Additionally, this study analyzed EU-10 Member State welfare by measuring the degree of "market closing," via EU-10 Member States' annual change in counting unit output (defined as a single tablet or capsule with a specific metric strength), and the degree of "market contraction," via EU-10 Member States' annual change in revenue. A well-known conjecture in economics is that in order for price discrimination to be welfare improving, output must increase. The results of this study indicate that EU-10 Member States' aggressive price controls and cost containment policies, in combination with parallel imports, have altered EU-10 Member States' national price levels (convergence) and welfare (decrease in welfare via a decrease in lower-income EU-10 Member State counting unit output and EU-10 Member States' revenue). The overall policy implication of this study is that while price discrimination can be perceived as being unfair or inefficient, the results support a case for facilitating price discrimination in the EU pharmaceutical industry.
Halloran, Michael Gerard, "Market closing and/or market contraction: Potential consequences of multinationals' inability to price discriminate. An analysis of European Union pharmaceutical pricing" (1998). ETD Collection for Fordham University. AAI9903715.