William S. Comanor

Strategic Pricing of New Pharmaceuticals

This paper provides empirical evidence on the leading factors affecting the prices of new pharmaceuticals, both at introduction and after 4, 6, and 8 years. Most important is the extent of therapeutic advance embodied in a new product. For drugs which represent important therapeutic gains, launch prices can be two or three times those of existing drugs used for the same purposes, while drugs that largely duplicate the actions of currently available products are typically priced at comparable levels. In addition, the number of branded substitutes has a substantial negative effect on launch prices, which reflects the importance of competitive pressures. Duplicate products thereby play an important economic role in pharmaceutical markets.

Research and Technical Change in the Pharmaceutical Industry

IN recent years there has been a good deal of discussion concerning the relationships among market structure, research and development, and the rate of technical change. Much of this discussion has focussed on the question of whether large firm size is a necessary condition before firms will engage in research, and whether research and development (R and D) is likely to grow more or less than in proportion to increases in firm size. A further set of questions deals with the relationship between research and the rate of technical change experienced by the firm. Can variation in the latter be explained largely by differences among firms in the size and character of their research programs? Are economies of scale in R and D likely to be present? What is the effect of firm size on the productivity of a research establishment? This paper provides an empirical analysis, concerned with these questions, of the experience of the United States pharmaceutical industry during the period between 1955 and 1960.

Allocative Efficiency, X-Efficiency and the Measurement of Welfare Losses

In estimating the loss from monopoly,1 it has been common to assume that inputs are used as efficiently as in competitive markets. The presumed reason for this assumption is that firms have a clear interest in minimizing costs per unit of output. While the ‘carrot’ of greater profits may well be a major determinant of firm behaviour, the competitive ‘stick’ may be equally important, and to this extent, monopoly will affect costs as well as prices. In this context, the welfare loss from monopoly should include the reduction in what one of the authors has called ‘X-efficiency’2 as well as the extent of allocative inefficiency, and therefore the combined welfare loss from monopoly may be very much larger than the usually calculated loss.

Racial Discrimination in American Industry

A. Becker proposed that discrimination be measured by a coefficient, di, which describes the extent to which employers impute to a discriminated class of workers, a wage rate which exceeds their money wage rate. If black workers are discriminated against, their imputed wage is Wb(l + di), where Wb is the money wage actually paid to blacks. Letting W,, be the money wage paid to workers who are not discriminated against, the necessary condition for cost minimization (including psychic as well as money costs) is: