Price regulation of pharmaceuticals in Canada

Abstract

Patent holding pharmaceutical firms are modeled as price-discriminating international monopolies. In an unregulated world market, firms set monopoly prices in each national market. Three types of regulatory rules: (i) 'reasonable' relationship rule, (ii) international price comparison rule, and, (iii) therapeutic class comparison rule, are examined. While price regulation may lead to lower introductory prices for new drugs, the price of existing drugs may increase. Domestic price regulation may increase foreign prices. Canadian data supported the model's predictions. Policy makers should anticipate these responses that affects the entire vector of drug prices and not just those subject to specific regulations.