62. Taking the competitor's pill: When combination therapies enter pharmaceutical markets

Brekke, K. R., Dalen, D. M., & Straume, O. R. (2025). Taking the competitor’s pill: When combination therapies enter pharmaceutical markets. Journal of Health Economics, 101. https://doi.org/10.1016/j.jhealeco.2025.102976This paper analyzes the competitive effects of introducing combination therapies in pharmaceutical markets. Combination therapies, which use multiple drugs—often from different firms—can improve treatment efficacy, reduce side effects, or prevent resistance. Using a duopoly model, the study examines how these therapies influence drug pricing, healthcare spending, and efficiency. The impact depends on the therapy’s additional therapeutic value (Δ) and its substitutability with monotherapy. Two opposing forces emerge: market expansion, which raises prices by attracting new patients, and margin competition, which lowers prices by increasing price sensitivity. Under uniform pricing, higher Δ and substitutability can push prices upward, sometimes reducing overall healthcare surplus despite health gains, while access remains suboptimal. Indication-based pricing can improve efficiency by lowering combination therapy costs relative to monotherapies, but it also raises healthcare spending. Price coordination has contrasting effects: under uniform pricing it increases costs, while with indication-based pricing it lowers prices and improves efficiency.