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Market structure and communicable diseases

Author

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  • Stéphane Mechoulan
Abstract
. Communicable diseases pose a formidable challenge for public policy. Using numerical simulations, we show under which scenarios a monopolist's price and prevalence paths converge to a non‐zero steady state. In contrast, a planner typically eradicates the disease. If eradication is impossible, the planner subsidizes treatments as long as the prevalence can be controlled. Drug resistance exacerbates the welfare difference between monopoly and first best outcomes. Nevertheless, because the negative externalities from resistance compete with the positive externalities of treatment, a mixed competition/monopoly regime may perform better than competition alone. This result has important implications for the design of many drug patents. Les maladies contagieuses posent un défi important à la politique publique. A l'aide de simulations numériques, on montre dans quels scénarios les prix de monopole et le sentier de prévalence tendent à engendrer un régime permanent où la maladie ne disparaît pas. Un planificateur typiquement élimine la maladie. Si l'éradication est impossible, le planificateur subventionne les traitements aussi longtemps que la prévalence peut être contrôlée. La résistance au remède agrandit l'écart de bien‐être entre le cas du monopole et l'optimum. Cependant comme les effets externes négatifs de la résistance au traitement sont en conflit avec les effets externes positifs des traitements, un régime mixte concurrence/monopole peut donner de meilleurs résultats que la seule concurrence. Ce résultat a des implications importantes pour l'élaboration de nombreux brevets pharmaceutiques.

Suggested Citation

  • Stéphane Mechoulan, 2007. "Market structure and communicable diseases," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(2), pages 468-492, May.
    • Handle: RePEc:wly:canjec:v:40:y:2007:i:2:p:468-492
    DOI: 10.1111/j.1365-2966.2007.00417.x
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    Cited by:

    1. Eswaran, Mukesh & Gallini, Nancy, 2016. "Rescuing the Golden Age of Antibiotics: Can Economics Help Avert the Looming Crisis?," Economics working papers nancy_gallini-2016-9, Vancouver School of Economics, revised 04 Jul 2016.
    2. Markus Herrmann & Bruno Nkuiya, 2017. "Inducing optimal substitution between antibiotics under open access to the resource of antibiotic susceptibility," Health Economics, John Wiley & Sons, Ltd., vol. 26(6), pages 703-723, June.
    3. Herrmann, Markus & Nkuiya, Bruno & Dussault, Anne-Renée, 2013. "Innovation and antibiotic use within antibiotic classes: Market incentives and economic instruments," Resource and Energy Economics, Elsevier, vol. 35(4), pages 582-598.
    4. Herrmann, Markus, 2010. "Monopoly pricing of an antibiotic subject to bacterial resistance," Journal of Health Economics, Elsevier, vol. 29(1), pages 137-150, January.
    5. Rowthorn, Robert & Toxvaerd, Flavio, 2012. "The Optimal Control of Infectious Diseases via Prevention and Treatment," CEPR Discussion Papers 8925, C.E.P.R. Discussion Papers.
    6. Matthew Goodkin-Gold & Michael Kremer & Christopher M. Snyder & Heidi L. Williams, 2020. "Optimal Vaccine Subsidies for Endemic and Epidemic Diseases," NBER Working Papers 28085, National Bureau of Economic Research, Inc.
    7. Eswaran, Mukesh & Gallini, Nancy, 2017. "Can Competition Extend the Golden Age of Antibiotics?," Microeconomics.ca working papers -2017-9, Vancouver School of Economics, revised 19 Oct 2017.
    8. Kremer, Michael & Williams, Heidi & Snyder, Christopher & Goodkin-Gold, Matthew, 2020. "Optimal Subsidies for Prevention of Infectious Disease," CEPR Discussion Papers 15433, C.E.P.R. Discussion Papers.
    9. Farasat A.S. Bokhari & Franco Mariuzzo & Weijie Yan, 2019. "Antibacterial resistance and the cost of affecting demand: the case of UK antibiotics," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2019-03, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    10. Albert, Jason, 2021. "Strategic dynamics of antibiotic use and the evolution of antibiotic-resistant infections," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    11. Daniel Bennett & Che-Lun Hung & Tsai-Ling Lauderdale, 2015. "Health Care Competition and Antibiotic Use in Taiwan," Journal of Industrial Economics, Wiley Blackwell, vol. 63(2), pages 371-393, June.
    12. Nancy Gallini, 2017. "Do patents work? Thickets, trolls and antibiotic resistance," Canadian Journal of Economics, Canadian Economics Association, vol. 50(4), pages 893-926, November.
    13. Na Hao & Gervan Fearon, 2009. "Government Funding Policy Towards Communicable Diseases," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 37(2), pages 121-134, June.
    14. Bialek, Sylwia, 2016. "Introducing Cattle Producer to the Hardin s World- Can Monopolies in Seed Markets Be Welfare Enhancing?," VfS Annual Conference 2016 (Augsburg): Demographic Change 145786, Verein für Socialpolitik / German Economic Association.

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    More about this item

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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