Over at Economic Principals, David Warsh writes about current debates in drug pricing, and raises some excellent questions for researchers interested in economic systems design.
About half of Warsh’s column concerns differential pricing, and half concerns alternative ways to organize and pay for research.
The problem with differential pricing, what economists typically call price discrimination, is that it can be difficult to sustain. Drug research has been funded in part by changing high margins on sales to customers with a high ability to pay; drug companies also make money by selling at lower margins to customers with less ability to pay. Free flow of information about drug prices, political and private interests in reducing health care costs, and ready transportability of drugs have made sustaining price discrimination difficult. A traditional source of the profits that drive drug R&D is going away.
Perhaps some clever researchers can find a way to shore up price discrimination mechanisms in drug markets. The alternative research agenda is to come up with another approach to funding drug research, the topic of the second half of Warsh’s “Push me, Pull you.”