ABSTRACT
This chapter examines some basic principles of pricing and assesses how they apply to drug pricing under various conditions and under reimbursement restrictions. It discusses the theoretical pricing concepts in the context of their application in drug pricing. Price elasticity relationships and price optimization analyses were discussed in the context of various forms of payer control, such as payer price controls and Managed Care formularies. Relationships between price, sales revenue and profits are studied in microeconomic theory. The concepts examines on their applicability to the free and government-controlled drug markets. Micro-economic principles and price optimization analyses discussed are generally applicable for any product in a free market economy. In most emerging markets, patients do not have healthcare coverage and as consequence pay for drugs out-of-pocket. For most drug categories patient preferences are less strong and non-reimbursed marketing options are usually not commercially attractive in price controlled markets. Innovative drugs tend to show much less elasticity than me-too or generic drugs.
