Abstract
This article investigates the economic theory and interpretation of the concept of "value-based pricing" for new breakthrough drugs with no close substitutes in a context (such as the United States) in which a drug firm with market power sells its product to various buyers. The interpretation is different from that in a country that evaluates medicines for a single public health insurance plan or a set of heavily regulated plans. It is shown that there will not ordinarily be a single value-based price but rather a schedule of prices with different volumes of buyers at each price. Hence, it is incorrect to term a particular price the value-based price, or to argue that the profit-maximizing monopoly price is too high relative to some hypothesized value-based price. When effectiveness of treatment or value of health is heterogeneous, the profit-maximizing price can be higher than that associated with assumed values of quality-adjusted life-years. If the firm sets a price higher than the value-based price for a set of potential buyers, the optimal strategy of the buyers is to decline to purchase that drug. The profit-maximizing price will come closer to a unique value-based price if demand is less heterogeneous.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
