engleski

Four degrees of price discrimination - examples from pharmacoeconomics

OBJECTIVES: To present the four degrees of price discrimination based on the criteria of quantity/quality differentiation and the individual/group patient differentiation. To answer the question of how are therapies valued relative to one another. METHODS: Firstly, we present a schematic representation of the traditional three degrees of price discrimination dependent on whether the seller targets individuals or groups, and whether buyers wish to use quantity or quality discounts. Secondly, we introduce the fourth degree of price discrimination on the example of the pharmaceuticals market. Drugs have different qualitative features that in our example are measured in percentage of sustained virological response, and/or different toxicities. We try to measure these qualitative values in the quantity/quality differentiation and conjecture a relation with the price of a drug. RESULTS: Economics recognises 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 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. We introduce a fourth degree of price discrimination based on price/quality relations of pharmaceuticals we call disutility discounts. Disutility discount is the aggregate subjective unwillingness to pay for lower therapy quality. CONCLUSION: The pharmaceutical industry is driven by the profit motive and bounded by patent expiration dates. Discriminatory pricing schemes are necessary to recover initial sunk costs of research and development investments, and are a reflection of different price/quality ratios present on the market.

pharmacoeconomics, price discrimination

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