Assessing the impact of global price interdependencies

Abstract

Documented launch delays and the ensuing debate over their underlying causes have focused on assessment from the individual country's perspective. Seen in a larger game theoretical framework this may cause problems, because although the countries see an individual game, the pharmaceutical firm sees a repeated linked game. The links are due to external reference pricing and parallel trade. Behaviours that are optimal in the single, individual game (for either the country or the pharmaceutical firm) may no longer be optimal when considering the global repeated game. A theoretical mixed integer linear model of the firm's launch and pricing decisions is presented along with examples wherein international price dependencies most likely played a role. This model can help countries understand the implication of their external reference pricing policies on the global repeated pricing game. Understanding the behaviour of the pharmaceutical firm in this global context aids countries in designing policies to maximize the welfare of their citizens.