quarter of 1993 is omitted) and plot the hedonic price index in Figure 3. The pattern of prices for the hedonic index (the lower line) in Figure 3 is dramatically different from Figure 2, which emphasizes the importance of controlling for prod- uct attributes. Prices were stable in nominal terms between 1993 and the second quarter of 1996 when the only regimen approved for colorectal cancer treatment was 5-FU/LV and the components of this regimen were no longer patent pro- tected. The hedonic index drops by about 25 points with the introduction of the two irinotecan-based therapies, which were priced at about $16,000. Controlling for the attributes of these new regimens and physicians’ valuations of those at- tributes, prices fell by about 25 percent. Over the next six years, including the period when capecitabine was introduced, the index increased from 0.71 to 0.85. The price index jumped by six points with the introduction of the oxaliplatin- based regimens in 2002, and has remained fairly constant since then during the time when cetuximab and bevacizumab were launched.
In the same figure we show the quality-adjusted price index. The quality- adjusted index is very similar to the hedonic price index during the period where only 5-FU/LV was present. There is a decrease of 28 points during 1998, when irinotecan started showing positive market shares.21 That decrease after the intro- duction of irinotecan was also present in the hedonic price index in 1996. During the period 1999 to 2001, the quality-adjusted price index slowly increases as does the hedonic price index, but in 2002 when oxaliplatin is introduced their pre- dictions differ. The quality-adjusted index exhibits a decrease after oxaliplatin is introduced, which may provide evidence that the hedonic price index is not able to capture the extending the range or filling the spectrum type of innova- tion that occurred during this period. The 8-percentage point decrease in the quality-adjusted price index after the introduction of oxaliplatin contrasts with the 6 percentage points increase in the hedonic price index. Finally, the quality-
21Although irinotecan was introduced in 1996, the SEER data set only shows positive market shares for this drug in 1998.