Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229711
Authors: 
Kamphorst, Jurjen
Karamychev, Vladimir
Year of Publication: 
2021
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2021-005/VII
Abstract: 
We offer a theory of how the combination of budget constraints and insurance drives up prices. A natural context for our theory is the health care market, where drug prices can be very high. Our model predicts that monopoly prices for orphan drugs are inversely related to the prevalence up until a maximum price. This is supported by empirical evidence in the literature. As a result, prices of drugs sold by a monopoly treating rare serious diseases are doomed to go sky high.
Subjects: 
Monopoly pricing
Insurance
Orphan Drugs
JEL: 
D42
G22
I13
Document Type: 
Working Paper

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