Research On The High Price Of Drugs And The Government Regulation

The pharmaceutical industry is related to the most important right to life for the broad masses of the people.The normal and reasonable operation of pharmaceutical market is not only related to the people’s most basic health and vital interests,but also affects social harmony and stability.Since the reform and opening-up,the Chinese government has maintained a high degree of attention to the pharmaceutical industry.China’s pharmaceutical industry has obtained long-term development.At the same time,there also occurred a serious problems such as artificially high drug prices intensive contradiction between doctors and patients,medical intermediary runs rampantly,and the normal medical market is badly disrupted.This paper argues that the government controlling the highest retail price limit of drugs is the accomplice in drug which plays a role in the rise of price.In this paper,we use contract theory analysis method to build a game model.The medical institutions owe two-way monopoly status in the process of drug sales.In the model,each participants is based on the effectiveness of self-action guidelines.Pharmaceutical manufacturers get certain pricing power through the official rent-seeking with which to obtain greater benefits in the process of drug sales.Officials can also get a lot of "gray incomes".Patients’ action after the rise of drugs can be treated as a means of struggle to maintain their own interests,the struggle of patients can be seen as an "accountability"to both officials and pharmaceutical manufacturers,so that officials and manufacturers may suffer a certain degree of loss.On the one hand,the actions of officials are subject to the dual role of pharmaceutical manufacturers and patients.On the other hand,pharmaceutical manufacturers can also adjust their actions according to official actions to maximize the effectiveness of itself.The analysis of this paper shows that,under different circumstances,officials and pharmaceutical manufacturers will adopt different strategies.From the perspective of social welfare,these strategies are not optimal.We constructing a government,pharmaceutical companies,medical institutions and patients in the game model,depicted in detail in the course of the game of key participating behavior and utility function.We found,after solving the model,the utility of pharmaceutical firms increases with the increase of the highest price of the government,which makes the pharmaceutical companies have strong motivation through a variety of ways to improve the government’s highest price ceiling.Therefore,the government maximum retail price limit on drugs will not solve the problem of "artificially high drug prices ".