Innovation and market dynamics in the EPO market
2006/3: Authors: Sorisio E, Strøm S, PharmaNess scarl, University of Turin, Italy, University of Oslo, The Frisch Centre, Oslo and HERO (PDF 330 kb)
Erythropoietin (EPO) is a recombinant protein that stimulates the production of red blood cells. The recombinant therapeutic proteins representtoday the main business sector of biotechnological drugs. Their development started in the ‘80s and recent estimations showed a market in constant growth. The focus in this paper is the demand and supply of erythropoietin in four Nordic countries.
Erythropoietin (EPO) is a recombinant protein that stimulates the production of red blood cells; it is used for the treatment of anemia related to chronic renal failure in dialysis patients, to increase the production of autologous blood in normal subjects, and to reduce the duration of anemia in patients treated with chemotherapy. Dispensing of EPO represents a strong advance in such therapies, also because it reduces the need of blood transfusions, with less risks of coming down with illnesses like viral hepatitis and AIDS.
In this paper the focus is on the demand and supply of erythropoietin in four Nordic countries. In the analysis it is used an econometric model based on discrete choice and a random utility model. It measures the effect of price changes as well as the loyalty of patients and physicians to a drug. Our main aims are to estimate demand for EPO and to determine the degree of competition in this Nordic market. The main motivation for this paper is to analyze the impact of product innovation on market power and welfare, e.g. on consumer and producer surplus. The product innovation is the entry of Aranesp in the Nordic market. We find a positive effect related to the introduction of a strong product innovation in the EPO market. The large increase in consumer surplus however seems not to be accompanied by a large increase in producer surplus, whose growth is slight. Some time after the introduction of the innovation, the total surplus tends to remain more or less the 3 same (or decreases a bit). Although there are only three producers in the Nordic market (after the entry of Aranesp), the estimated market power in the long run is rather low.