The End Of Price Hikes for Pharmaceuticals?

Many drug companies hold monopolies over production of certain medications simply because of patents. However, this Business Insider article¬†shines light on a type of monopoly no one thinks to talk about. Similar to the “You can’t take it with you” effect discussed in class, certain drug companies will excessively raise their prices because they are producing a life saving drug for which there is no substitute. The demand is presumably inelastic, but they also don’t have very large markets in general. Therefore, these “orphan drugs” don’t make the companies which produce them any profit because the market is so small. Since profits aren’t being made, even when patents expire generic drug makers have no signal to enter into the market thus allowing the monopoly to remain. With no true market price these firms feel they can set whatever price they want, thus leading to 5000% increases of prices in some cases. However, they are still subject to demand and while patients who need these drugs will continue to purchase them, the pressure is increasing for these companies to increase their consideration of their consumers. As highlighted in the article, when firms less than ethical prices hikes were exposed, several announced plans to cut prices. Could the end of exorbitant prices for these “orphan drugs’ be headed our way? Is all it takes to increase a company’s ethics is expose their behind the scenes dirty work?

1 Comment »

  1. morrimad Said,

    November 8, 2016 @ 3:25 am

    Good use of the new concepts learned in class, the “you can’t take it with you effect” is a very good example in the drug industry.

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