Cross-national price differences for pharmaceuticals: how large, and why?

Bilateral drug price and quantity indexes, based on comprehensive data for seven countries (US, Canada, France, Germany, Italy, Japan and the UK), refute the conventional wisdom that US drug prices are much higher than elsewhere, for Laspeyres (US-weighted) indexes. Previous drug-price comparisons are biased by unrepresentative samples and unweighted indexes. Quasi-hedonic regression shows that cross-national price differences reflect differences in product characteristics and in their implicit prices, which reflect the regulatory regime. Strict price regulation systematically lowers prices for older molecules and globally diffused molecules. Generic competition lowers prices in less-regulated regimes, which also have more price-elastic demand.

Patricia M. Danzon and Li-Wei Chao

Journal of Health Economics

March 2000

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