Drug prices: how they are established and existing price control systems

Price is one of the main barriers of access to medicines. It is therefore important to understand how prices are formed and what factors determine the amount, as well as what interventions and regulations are the most appropriate considering their effects on access, innovation, local production and other potential objectives of drug policy. Economic analysis has developed a set of market models that can explain the behavior of prices, although actual markets diverge substantially from the theoretical models. Price regulation is justified by the so-called "market failures." Price regulation based on the cost of production, the most traditional form of price control, has fallen into disuse in favor of systems of international reference pricing and value-based pricing.