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Competition matters: Uniform vs. indication-based pricing of pharmaceuticals.
Kurt R Brekke1, Dag Morten Dalen2, Odd Rune Straume3
1Norwegian School of Economics (NHH), Department of Economics, Helleveien 30, 5045 Bergen, Norway.
Journal of Health Economics
|June 23, 2026
Summary
Pharmaceutical companies face a choice between uniform drug pricing and indication-based pricing. Indication-based pricing can boost investment in new drugs, but uniform pricing may benefit payers in competitive markets.
Area of Science:
- Health Economics
- Pharmaceutical Policy
- Market Analysis
Background:
- Rising pharmaceutical expenditures challenge healthcare payers.
- Drug innovation offers effective treatments but at high costs.
- Payers must balance cost containment with patient access to new medicines.
Purpose of the Study:
- To analyze the impact of uniform versus indication-based pricing on drug producers' investment incentives.
- To evaluate how pricing strategies affect market competition and payer surplus.
- To determine the optimal pricing policy for multi-indication drugs.
Main Methods:
- A two-market economic model was developed.
- The model analyzed producer investment, pricing strategies, and payer surplus.
- Scenarios included monopoly and competitive market settings.
Main Results:
- Indication-based pricing increases producer profits and investment incentives in a monopoly.
- Payers may prefer uniform pricing unless high fixed costs are a barrier.
- In competitive markets, uniform pricing can lead to higher prices due to a "softening-of-competition" effect, potentially favoring indication-based pricing for payers.
Conclusions:
- Neither uniform nor indication-based pricing is universally superior.
- The optimal pricing strategy depends on market structure and drug characteristics.
- Case-by-case assessments are crucial for pharmaceutical pricing policy decisions.
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