The Wharton School
University of Pennsylvania
NBER Working Papers and Publications
|June 2014||Regulation of the Pharmaceutical-Biotechnology Industry|
with Patricia M. Danzon
in Economic Regulation and Its Reform: What Have We Learned?, Nancy L. Rose, editor
Pharmaceuticals and human biologic products (referred to below as "pharmaceuticals") are regulated in virtually all aspects of the product life-cycle: safety, efficacy and manufacturing quality as a condition for market access; promotion; and pricing. The rationale for heavy regulation of pharmaceuticals is not intrinsic natural monopoly, since any market power enjoyed by individual products derives ultimately from government-granted patents. Rather, regulation of market access, manufacturing and promotion arise because product efficacy and safety can be critical to patient health but are not immediately observable. In contrast, price regulation is best understood as a response by public insurers to the fact that insurance makes consumers price insensitive. Although these considerations ...