Economics of Excessive Pricing: An Application to the Pharmaceutical Industry

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While established in European competition policy, the notion of an ‘unfair’ or ‘excessive’ price is not well defined in economics. Any competition enforcement in this area needs to account for several unique features of the pharmaceutical sector, for example the relationship between prescriber and payer, regulatory pricing and significant common costs. Failure to do so may lead to unwarranted excessive pricing findings, which may have broader societal consequences. Given the interplay between healthcare policy, regulation, R&D and pricing, excessive pricing enforcement may be unsuitable in the pharmaceutical sector; if intervention is warranted, regulation may be more efficient.