Journal of Pharmaceutical Finance, Economics & Policy (2008), Vol.16:2, pp. 3-12
The aim of this article is to provide information on how different price-regulation environments affect the price-cost margins of the pharmaceutical industry. To this end, we estimate the US pharmaceutical industryŽs price markups, or price-cost margins, against FinlandŽs highly regulated governmental price-setting system. Theoretically, the estimation rests on a modification of the conventional growth model and its extensions for imperfectly competitive markets. The results show that the price-markup estimates are relatively close to each other and differences in regulatory environments have not altered the price markups in the pharmaceutical industry in these two countries. This implies difficulties in setting up and sustaining an efficient price regulation system.