Monopoly pricing of an antibiotic subject to bacterial resistance.
We develop a dynamic bio-economic model of bacterial resistance and disease transmission in which we characterize the pricing policy of a monopolist who is protected by a patent. After expiration, the monopolist behaves competitively in a generic industry having open access to the common pool of antibiotic efficacy and infection. The monopolist manages endogenously the levels of antibiotic efficacy as well as the infected population, which represent quality and market size respectively and achieves, at least temporarily, higher such levels than a hypothetically myopic monopolist who does not take into account the dynamic externalities. The pricing policy and the biological system is characterized by the turnpike property. Before the patent vanishes, the monopolist behaves more and more myopically, leading to a continuous decrease in the price of the antibiotic. Once the generic industry takes over, a discontinuous fall in price occurs. Whether a prolongation of the patent is socially desirable depends on the relative levels of antibiotic efficacy and infection.
Herrmann
Markus
M
Department of Economics, CREA - GREEN and CIRPEE, Université Laval, Pavillon J.-A.-DeSève, Office 2254, 1025, avenue des Sciences-Humaines, Québec, QC, Canada G1V 0A6. markus.herrmann@ecn.ulaval.ca
D000900:Anti-Bacterial Agents / Q000191:economics*; D004345:Drug Industry / Q000191:economics*; D024881:Drug Resistance, Bacterial; D004465:Economic Competition; D018803:Models, Economic; D010330:Patents as Topic; D011634:Public Health
D000900:Anti-Bacterial Agents