title: Price-cap Regulation, Uncertainty and the Price Evolution of New Pharmaceuticals.
abstract: This paper examines the effect of the regulations restricting price increases on the evolution of pharmaceutical prices. A novel theoretical model shows that this policy leads firms to price new drugs with uncertain demand above the expected value initially. Price decreases after drug launch are more likely, the higher the uncertainty. We empirically test the model's predictions using data from the Canadian pharmaceutical market. The level of uncertainty is shown to play a crucial role in drug pricing strategies.
authors.affiliation: University of Calgary, Department of Economics, Alberta, Canada.
authors.forename: Ali
authors.initials: A
authors.lastname: Shajarizadeh
authors.affiliation: University of Calgary, Department of Economics, Alberta, Canada.
authors.forename: Aidan
authors.initials: A
authors.lastname: Hollis
mesh_terms: D002170:Canada; D003363:Cost Control; D016527:Drug Costs / Q000331:legislation & jurisprudence* / Q000706:statistics & numerical data*; D004345:Drug Industry / Q000706:statistics & numerical data*; D004465:Economic Competition; D006801:Humans; D015233:Models, Statistical; D035501:Uncertainty
keywords: new pharmaceuticals; price evolution; price-cap regulation; pricing strategies; uncertainty