Figure 2. The effect of the drug price, P, on the loss of revenues (in absolute terms) of the pharmaceutical company (panel A), the consumer surplus (panel B), and the number of patients using the drug (panel C).

The case shown is for a health improvement h = 0.5 and a Pareto exponent 2. For these typical parameters, the optimal monopolistic price is P^* = 0.75 (in units of the minimum consumption level). Placing a price cap of P = 0.6 dramatically increases the consumer surplus and the number of patients using the drug, while having only a marginal effect on the revenues of the pharmaceutical company.