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This dissertation investigates the dynamics of different market failures in global pharmaceutical markets. It explores how pharmaceutical markets are shaped by state intervention or the absence of state intervention. Governments have a range of policy tools, market mechanisms, and legal avenues available to improve access to medicines. However, efforts by policymakers to address drug shortages, as well as high and rising prices, are frustrated by deep cracks in the information ecology. Despite policy efforts to improve transparency, the most central questions to access policy – How much does it cost to manufacture a medicine? What prices are being charged in different markets? Is the medicine affordable? How much manufacturing capacity is there at present, where is distributed, and how much could be mobilized in an emergency? – cannot be readily answered, for most medicines and in most markets, with the data that are currently collected. Such information asymmetries engender not just inefficiency, but can also drive inequality, with those least able to pay high prices or compensate for supply shocks disproportionately affected by monopoly markets or exogenous shocks like COVID-19. This dissertation takes steps towards filling these data gaps and offers new methods that can be expanded to other therapeutic areas, geographic regions, and market interventions. The three chapters that follow investigate market dynamics that affect medicines through three stages of the supply chain: first, markets for the raw ingredients used to manufacture medicines; second, the economics of converting raw ingredients into finished products that can be delivered to patients; and third, the dynamics of price competition for marketed medicines. I analyze the effectiveness of state efforts to control prices, and consequences where markets are left to an “invisible hand that is often not there”. Chapter 2 applies recent advances in quasi-experimental methods (synthetic difference-in-differences) to a novel, large dataset of trade data to evaluate the effect of COVID-19 on markets for active pharmaceutical ingredients (API) in India and China. Separate analyses are undertaken for key essential medicines and medicines speculatively repurposed for COVID-19, as well as analysis of heterogeneous effects experienced by low- and middle-income country (LMIC) and high-income country (HIC) markets. I find that prices for pharmaceutical raw materials doubled following the WHO declaration of a pandemic on 11 March 2020 for key essential medicines, and increased by as much as 500% for speculatively repurposed medicines like hydroxychloroquine and ivermectin. The volume of pharmaceutical raw materials exported to LMICs decreased in the year following the pandemic, while the amount exported to HICs increased. The causes for this disparity are complex and beyond the scope of this chapter, but qualitative work undertaken adjacent to this dissertation suggests that there was higher price sensitivity among LMIC purchasers and manufacturers responded to a decreased production capacity by prioritizing supply agreements with clients in HICs. Chapter 3 focuses on the global insulin market, a market characterized by an established oligopoly: three firms are estimated to control over 90% of the global insulin market, while access to treatment remains a challenge, with an estimated quarter of patients rationing insulin. Using trade data and interviews with manufacturers, this paper models the manufacturing costs for different types of insulin, as well as two other key groups of novel diabetes treatments: glucagon-like peptide 1 receptor (GLP1) agonists and sodium-glucose cotransporter 2 (SGLT2) inhibitors. The analysis finds that newer insulins, SGLT2 inhibitors, and GLP1 agonists can be profitably manufactured for prices significantly below current market prices. This suggests that prices of these key diabetes medicines could fall with increased competition or changes in procurement and price negotiations. More generally, these findings demonstrate that modeling of pharmaceutical manufacturing costs is feasible even without access to confidential internal data. Chapter 4 uses a sharp change in competition (antitrust) jurisprudence in the UK as a natural experiment to investigate how competition investigations and fines impact pricing practices in the pharmaceutical sector. Controlled interrupted time series (CITS) and difference-in-differences analyses are applied to generic drug price data in the UK to evaluate whether a landmark competition case (Pfizer and Flynn Pharmaceuticals v. the UK Competition and Markets Authority) had spillover effects in deterring excessive pricing across the generics markets. The analysis finds that only medicines with price increases of more than tenfold since 2010 responded to the increased probability of prosecution signaled in Flynn by lowering prices, and even these price reductions were modest (a 5% reduction relative to changes observed for non-excessively priced generic medicines). This suggests that the fine issued by the UK competition authority has so far not been effective as a deterrent to ‘excessive pricing’.
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