engleski

Personalized medicine and personalized pricing: Four degrees of price discrimination

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. But, 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 the profit motive 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. This is a problem for low income EU member states as prices of pharmaceuticals are formed according to the dominant market average willingness to pay. In this paper, we introduce a fourth degree of price discrimination based on qualitative features of pharmaceuticals on a market for antiviral drugs. The main qualitative feature of an antiviral drug is its Sustained Virological Response (SVR). We conjecture the SVR to be the primary cause of price differentials for antiviral pharmaceutical therapies on the market. The fourth type of discrimination would be of particular interest to the pharmaceutical industry and health management organisations as it introduces nonlinear price-quality combinations. Since budgetary constraints prevent the less wealthy EU member states to acquire all the newest and extremely effective drugs that are getting to the market, some new types of contracts and confidential risk-sharing agreements are being envisaged.

price discrimination; pharmacoeconomics; SVR; hepatitis

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