ABSTRACT
Prescription drug pricing has many economic and social aspects and implications. This chapter focuses the micro-economic aspects of pricing that need to be considered together with other non-economic aspects in final decision-making. Product pricing has a more direct impact on profits than most other elements of the marketing mix. When considering fixed cost, even a slight decrease in price can significantly reduce or even eliminate the profit margin. Relationships between price, sales revenue and profits are studied in micro-economic theory. Pharmaceutical companies have a relatively high risk of research and development investments and liability issues related to potential adverse events. In the pharmaceutical market, price elasticity is different between products as well. Innovative drugs tend to show much less elasticity than generic drugs. Price elasticity of demand can be very different from customer to customer. Income and personal preferences are two of the obvious parameters that impact price elasticity.
