Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 19/2023: Taking the competitor’s pill: when combination therapies enter pharmaceutical markets

Kurt R. Brekke (), Dag Morten Dalen () and Odd Rune Straume ()
Additional contact information
Kurt R. Brekke: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Dag Morten Dalen: Dept. of Economics, BI Norwegian Business School, Postal: BI , Department of Economics, Nydalsveien 37, 0484 Oslo, Norway
Odd Rune Straume: Dept. of Economics, University of Bergen, Postal: UiB, Department of Economics, Fosswinckelsgate 14, 5007 Bergen, Norway

Abstract: We study the competitive effects of combination therapies in pharmaceutical markets, which crucially hinge on the additional therapeutic value of combinatory use of drugs and the therapeutic substitutability with the most relevant monotherapy. With large additional therapeutic value, the introduction of combination therapies leads to higher prices and, somewhat paradoxically, may reduce the health plan's surplus. Although combination therapies imply that drugs become both substitutes and complements, we show that drug prices increase if the firms are allowed to coordinate their prices. Allowing for price discrimination might increase allocational efficiency, but only at the expense of higher purchasing costs.

Keywords: Pharmaceutical markets; Combination therapies; Therapeutic competition

JEL-codes: I11; I18; L13; L65

Language: English

38 pages, November 22, 2023

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