• Ronald J Vogel.
• Center for Health Outcomes and PharmacoEconomic Research, College of Pharmacy, The University of Arizona, Tucson 85721, USA. vogel@pharmacy.arizona.edu
• Clin Ther. 2004 Aug 1; 26 (8): 1327-40; discussion 1326.

BackgroundEach country in the European Union (EU) currently employs direct price controls or permutations of direct price controls, such as reference pricing or limitations on returns to capital. Some countries also use volume controls. A new proposal that is being discussed would have all of the countries in the EU adopt uniform pricing for each pharmaceutical.ObjectiveThis paper analyzes the economic effects of free-market pricing individual-country price controls, and uniform EU price controls.MethodsMicroeconomic and mathematical models were used to simulate and predict probable economic outcomes in a comparative static setting.ResultsPrice controls may be in the form of price ceilings or price floors. Both forms of price control generate deadweight economic losses in the short run and long run. A uniform EU price for each pharmaceutical sold there would have elements of a price ceiling in some of the countries and of a price floor in other countries. The deadweight loss incurred would be a function of the level at which the uniform price was set by the EU and the price elasticity of demand for each pharmaceutical in each country.ConclusionsEconomic efficiency is maximized in both the short run and long run when prices are set in freely competitive markets. An additional important dimension of Ramsey pricing within a competitive context is that it generates funds for investment in pharmaceutical research and development, which enhances economic efficiency in the long run.

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