tag:blogger.com,1999:blog-7169279.post4655672643471766921..comments2023-11-24T03:20:02.361-07:00Comments on Tufte's Economics Classes Blog - A Living Textbook: Pharmaceutical Companies Price Discriminate TooDr. Tuftehttp://www.blogger.com/profile/17397586052171706438noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-7169279.post-91604232010037510362011-11-14T14:06:46.614-07:002011-11-14T14:06:46.614-07:00That's actually a very good point; and, like a...That's actually a very good point; and, like a lot of things in economics, there are two effects that you have to net out.<br /><br />First, a monopoly is a more useful thing to have, and will exploit customers worse, if demand is more inelastic.<br /><br />Second, the extent of the deadweight loss - that society should actually worry about - is smaller when demand is more inelastic. <br /><Dr. Tuftehttps://www.blogger.com/profile/17397586052171706438noreply@blogger.comtag:blogger.com,1999:blog-7169279.post-14612276827897362682011-11-12T08:28:26.104-07:002011-11-12T08:28:26.104-07:00If a pharmaceutical company can exercise monopoly ...If a pharmaceutical company can exercise monopoly power, and the demand for the good is inelastic, this brings up a very interesting question -- how much can the company charge before deadweight loss occurs? As Windwalker mentioned in his original post, even though the medicine cost may be obscenely high, it still isn't high enough for Windwalker to say, "no thanks, I'm better off Xavierhttps://www.blogger.com/profile/02996039029418395231noreply@blogger.comtag:blogger.com,1999:blog-7169279.post-71425745370628072292011-11-09T11:01:07.070-07:002011-11-09T11:01:07.070-07:00The phrase "what they provide is needed"...The phrase "what they provide is needed" means their demand is inelastic, and the phrase "there are no substitutes" means they can exercise monopoly power. The latter means their markup will be non-zero, and the former means it will be big.Dr. Tuftehttps://www.blogger.com/profile/17397586052171706438noreply@blogger.comtag:blogger.com,1999:blog-7169279.post-88761395569916666352011-11-05T10:44:01.350-06:002011-11-05T10:44:01.350-06:00These companies can charge high prices because wha...These companies can charge high prices because what they provide is needed and at least in the first few years there are no substitutes to the product. The thing I wanted to add is that price discrimination continues in the later years of the project when companies provide the original product as well as a generic. These products are usually offered at different prices and would therefore Bretthttps://www.blogger.com/profile/08519027332601061975noreply@blogger.comtag:blogger.com,1999:blog-7169279.post-46592158204348534262011-11-04T17:34:51.161-06:002011-11-04T17:34:51.161-06:00I like both the post and comment.
I'd add tha...I like both the post and comment.<br /><br />I'd add that price discrimination is also what's going on when U.S. pharmaceutical companies sell their drugs at different prices in different locations. Those cheap drugs are in Tijuana because they're thinking you won't make the effort to go get them, and for the most part, they're right.<br /><br />To counter Kevin's Dr. Tuftehttps://www.blogger.com/profile/17397586052171706438noreply@blogger.comtag:blogger.com,1999:blog-7169279.post-60446722281720045442011-10-31T17:40:54.511-06:002011-10-31T17:40:54.511-06:00It makes logical sense that in any market where co...It makes logical sense that in any market where competition exists, there should be price discrimination. Pharmaceutical products tend to be very unfavorable as far as affordability for the average consumer, so I am with you on that one. I also agree that R&D eats a large portion of the costs, but where would we be without such costs? Yes price discrimination is present in the Anonymousnoreply@blogger.com